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VAT cut for food products yields 1bln RON dent to state budget

de     HotNews.ro
Vineri, 14 aprilie 2006, 0:00


The Senate endorsed on Thursday the Conservative’s initiative of cutting down the VAT for food products with 10 per cent. The vote sparked new tensions within the governing coalition and within the DA alliance.

Financial analysts interviewed by Hotnews.ro have different opinions regarding the measure, whether it would benefit the population or would contribute to the deplition of the state’s budget.

Niculae Done, partner with financial consultancy company KPMG, said for Hotnews that the potential reduction would be hard to chew by Minister of Finances which tries to increase the revenues to the state budget, nevertheless the measure would benefit the population.

Cristian Badescu, chief editor of Piata magazine, believes that the ones to benefit most out of this reduction are the intermediate merchants, while the measure might lead to the budget depletion, creating a loss of approximately 1 billion RON.

Badescu considers the Senate’s vote more of a political than of an economic move, which the Democratic Party made in order to sabotage the Liberal government.

Done considers that the VET cut favours the final consumer, as the basic products will be cheaper and the demand will soar. The analyst also believes that this measure is perfectly adoptable by the EU members as well, as the European legislation imposes only one limit, and that is the minimum threshold should not go below 5 percent.

Cristian Badescu draws attention to the fact that the 10 percent cut will not yield a 10 percent discount for the food products, but the most fortunate cases will rise to 2 percent of the final price. Hence, the ones to benefit this cut are not the final consumers, nor the producers, but the intermediate vendors, as previous experiments have shown.

For the products with little competition, it is unlikely that the price will suffer major discounts. The sugar market is dominated by only two or three very powerful competitors who will not operate significant discounts. As the bread is concerned, the producers warned lately that the price should be increased.

There will be very difficult for the government to compensate the loss of revenues, if this VAT cut is endorsed by the House of Deputies and the President.

Niculae Done says that the money collecting efficiency should be increased, whereas Badescu foresees further increases in other taxes, but he believes that this measure will not pass in the House, as Liberals and Democrats will compromise eventually.
























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