In a joint letter, the main business associations in the country recommended the Romanian Government not to abandon the flat tax rate system - but rather curb the tax evasion and close the loopholes that allow fiscal optimisation, such as the fiscal regime of the micro-enterprises and freelancers, Cursdeguvernare.ro reported.

The associations not only firmly reject the progressive personal income taxation but also argue for capping the social security contributions for high wages.

The six recommendations outlined by the business association diverge significantly from the recommendations made by the more objective experts of the International Monetary Fund (IMF) after the Article IV consultations this year.

The overlapping recommendations are, interestingly, on the Government’s agenda as well - which was not of much use, indeed. Fiscal system digitalisation, fighting tax evasion, and closing the loopholes (with some variations) are on all agendas. Although the business associations’ message fails to mention the preferential dividend tax rate suggesting a cap on the social security contributions instead.

But what matters most is that the Government failed to come up with a clear vision of what it wants to do in order to boost the budget revenues. In principle, it can no longer enact reforms that can be enforced as of January 2023.

The prime minister (Nicolae Ciuca) having no particular economic vision and the Liberal Party losing its clarity after the change of leadership allowed the Social Democrats to express more credible strategies. The lack of cooperation between the two ruling parties resulted, however, in a deadlock.

But the rising financing cost will force the Government to seek fiscal consolidation not because it is under the Excessive Deficit procedure but because gaps of 6%-8% of GDP are simply not sustainable in a normal world, other than that of negative interest rates (that prevailed until recently).

iulian@romania-insider.com

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