President Traian Basescu: VAT level and the flat tax remain unchanged, public wages drop 25%, pensions drop 15%

VAT and the flat tax remain unchanged, while wages in the public sector will drop 25%, President Traian Basescu announced on Thursday, after a meeting with IMF experts and politicians from the governmental coalition.

Here are the main ideas put forward by the Romanian president:

• There are 3 million people working the real economy and public sector spending transferred on those who work. The public sector did not react to the crisis and did not reduce spending.

• IMF experts together with members of the government had two options: raising VAT from 19 to 24%, increase the flat tax from 16 to 20% and reduce public wages with 20%, to be able to confine with the public deficit level of 6.7-6.8%.

• the Government should continue its plans to massively cut public spending. We should trust the government’s ability to conduct reforms. The option will be included in a new memorandum signed with the IMF and it reflects its trust in the executive’s ability to reform the state.

• The government plans to reduce the wages in the public sector by 25% beginning with June 1st. Until the end of the year all public institutions managers have to lay off a part of their personnel.

• All workers will be affected, including those who gain a  minimum wage, but the Government will compensate the difference up to 600 lei, so there will be no wage lower than 600.

• As for pensions, the government will transfer 1.7 billion euro to the pensions fund but still, the government is 500 million euro short. As a consequence, pensions will be cut by 15%.

• Subsidies will also be cut. There are 16 social programs in Romania, most of them started before the elections. All of them will be reanalyzed and thought thoroughly, to make sure they reach their proposed goals.

• The unemployment benefits will be reduced by15%.

• The Government should modify the Labor Code to induce flexibility of the working force.

• Land owners are getting subsidies for the land they do not work. I say to the farmers’ representatives who complain on TV that the state granted subsidies worth 30 billion and collected only 400 million in the last 10 years.

• Romania’s only chance is to restructure spending now, to put an end to tax evasion and smuggling. Ministers Blaga and Videanu are responsible for diminishing tax evasion and cigarettes and alcohol smuggling.

• I am counting on the solidarity of the politicians from the government, because the alternative  would be to raise taxes.

• Our duty is not to burden the private sector and the 22 million Romanians

• If public spending is not cut, new loans will have to be contracted to cover for the costs

• Nobody talks right now about reshuffling the government – we need trust and stability.