BNR’s Lazea: Moving to progressive taxation to force Romania’s economy to become competitive by quality

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Income globalization and progressive tax are two facets of the same medal, so they need to be considered together, Valentin Lazea, National Bank of Romania (BNR) Chief Economist said for Agerpres, capital.ro informs.

According to him, moving to progressive taxation will force Romania’s economy to become competitive by quality and customization of its products and services, even if it will lose its fiscal competitiveness in the first stage.

Central bank’s chief economist argues that switching to flat tax rate as of 2005 has been generated by the tax competition of other states in the area that had passed to the single quota or had the intention to pass.

In his opinion, it’s important to set reasonable and increasing tax rates, not decreasing, as the current government is doing, “by depleting a budget already deprived by resources.”

The Romanian authorities decided to transfer the social contributions from the employer to the employee and cutting the income tax from 16 percent to 10 percent, starting with January 1, 2018, by adopting on November 8 the Emergency Ordinance amending and completing the Law no. 227/2015 regarding the Tax Code.

Lazea also stated that a net minimum wage of about EUR 300 per month is probably sustainable for Romania’s economy and helps reduce the gap between the richest and the poorest Romanians, but its growth should take a break for the moment.

This comes after Labor Minister Lia Olguţa Vasilescu announced in the government meeting on October 26, that the country’s gross minimum wage will increase to RON 1,900 starting January 1, 2018, from RON 1,450 at present.

As regards Romania’s economic growth beyond potential, the BNR’s chief economist argues that the effects of overheating are already seen.

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