Romanian PM Emil Boc announced officially on Saturday, June 26, that the Executive decided to raise the VAT by 5%, from 19 to 24%, and has approved the final draft of the letter to the IMF. Emil Boc said the decision was "the best remaining solution at this point"after the Constitutional Court declared the law meant to axe pensions unconstitutional. The political environment did not hesitate to react
Boc tried to justify the increase in VAT. He declared that the initial proposal was to cut 25% off salaries in the public sector and 15% off pensions. "The solution proposed initially was the best solution for Romania's economy", he said.
The CCR ruled out the cut in pensions was unconstitutional. "As the Constitutional Court's decision is final, the Government started negotiations with the IMF, the EC and political Coalition partners for another plan of measures. The government decided to increase the VAT by 5%, from 19% to 24%", Boc said. He also stated that the final draft of the IMF letter has been approved on Saturday and the agreement wouldl resume. He hopes for the fifth instalment to be allocated after the IMF board meeting on Wednesday.
"Thus, we solved part of the problem - keeping Romania's credibility on the international markets and managing within the limits of the budget deficit. We will correlate our policies with the Central Bank, so that the inflation and the euro-leu exchange currency to be kept under control. The solution to increase the VAT was the only left, after the CCR's decision. We chose the best decision for Romania, given the circumstances. It was the best decision judging by the others left", Boc said.
Finance minister Sebastian Vladescu said he could only express his profound disappointment towards the decision to raise the VAT. He considers the measures rejected by the CCR to have been better. "We had a surgical solution, but we were operating where we should have - on the restructuring of the public department and the pensions system's deficit (...) but we were not allowed to enforce this solution. One that affects everyone, like the increase in taxes, is the measures that we did not want", Vladescu added.
Ex-Finance minister Varujan Vosganian, Liberal Party vice-president, described Boc Cabinet's VAT measure as inefficient, insufficient, impoverishing andl leading to prices going up by more than 5%. "We still don't know the Government's vision on the budget balance", he said quoted by news agency Mediafax, adding that the 2010 budget unbalance needs at least 3 billion Euros to bring down the deficit to 6.8%. "Plus, the underprivileged people, who rejoiced the fact that pensions were not going to be cut, need to know that this measure addresses them in the first place, because the people who dedicate their entire incomes to consumption will be the most affected by the increase in VAT. (...) PNL rejects this solution, which we consider most facile, but at the same time impoverishing for Romanians", Vosganian said.
Opposition Social-Democratic leader Victor Ponta criticised the increase in VAT, saying it was not justified by the fact that pensions were not going to be cut by 15%. According to him, it only shows that the Government has got no strategy and acts randomly. "The rise in VAT will bury, once and for all, the private economy. The economy it's on its knees and now it will be destroyed completely, while corruption and fiscal fraud will increase significantly", Ponta said, quoted by Mediafax.