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Social Security Tax Cut

Social Security Tax Cut

The Romanian Government is trying to find ways to sustain the much debated social security tax cut. By doing so, the Government intends to stimulate employment in Romania and reduce the burden on labor. Recent discussions between the Presidency and the Government have failed to provide sustainable ways to make the cut possible. 

The cut will be made if it proves to be beneficial

The Romanian President, Traian Basescu, recently declared that he will not promulgate the law proposed by the Government, if he is not convinced that it is economically possible to take such a measure and that he is waiting for an evaluation from the Government to make sure that the social security tax cut will not be compensated by introducing new taxes. The Romanian President also declared that he agrees to the cut as long as this guarantees that the deficit will be improved and if the measure proves to be beneficial to the Romanian economy. 

His point of view is also shared by the International Monetary Fund who believes that the Romanian authorities should be prepared to present a clear set of measures that prove that the budgetary impact created by the reduction can be dealt with.

Proposals to sustain the social security cut

Following the request for a more documented proof that the social security tax cut is a sustainable measure, Romania’s Prime Minister recently proposed that the cut can be compensated by a series of measures: taxes on new jobs, VAT for new investments, debt recovery from insolvent companies, the decrease of social security tax evasion.

Mugur Isarescu, the governor of the Romanian Central Bank, also considers that additional measures need to be considered, besides the social security tax reduction, to help the overall creation of new jobs in the country.

Earlier this year, in June, the Romanian Government approved a five percent cut in the social security tax. The measure is yet to be approved and discussions regarding the social security tax cut are on-going. If the social security tax cut will be considered possible, it would drop to 15.8%, a percentage that would make Romania the country with the second lowest social security tax in the region, after Slovakia (14%) and before Poland (16.26%).