BNR Governor Isarescu: I am not against tax cuts, but against the size of the package of tax cuts

“I am not against tax cuts, but against the size of the package of tax cuts. It is shock type of easing with profound effects on the Romanian economy. The Parliament must be informed fully and accurately about these effects. The fiscal easing is judged according to its components, according to the business cycle when it is applied, at the time when it is introduced. How could I stand against fiscal easing, when in 2000, as prime minister, I began the first consistent easing, by reducing the income tax? At the time it was a suitable moment, painstaking calculations and impact assessments were made, etc,” says the central bank Governor Mugur Isarescu in an interview granted to the magazine ‘Revista 22’.
“As I mentioned 2000, at the time the decision was based on the fact that not every tax cut is feasible and beneficial, and the sustainability of the fiscal-budgetary building needs deep structural reforms. (…) The low taxation level of various sectors of Romanian economy makes the tax burden to be higher for fair tax payers. The entrepreneurs, as taxpayers, end up contributing to the budget even by 50-60% of their income. It is normal for them to want a fiscal easing. But for this to happen, it is not enough to have just tax cuts, we need structural reforms that would lead to a balanced distribution of the tax burden. The solution is, therefore, a tax cut in the hope that the tax burden is lower, the state collects more, but we first need a better collection through structural reforms, confirmed in time, and then to apply a tax easing as part of a gradual process, in accordance with the available fiscal space,” Isarescu says.
“My public reproach was addressed to economists, to economic research institutes, to universities, as they did not say a word about how the market economy works and is driven. If economists in Romania had clarified the fundamentals of the market economy functioning, we would not have reached the current situation, when public debate considers a change in the public deficit from 1% to 3% of GDP as unimportant. In fact it is a major and long term change in strategy: the medium and long term direction of development is changed.”
“In the National Bank’s interpretation, the economic growth of 4% is close to the limit of our economic potential of the moment. By stimulating consumption to an economy placed at the limit of potential growth means to dope it, which leads to unhealthy growth,” said the BNR Governor.