FAIL Raising taxes or introducing new ones, boosting the public expenditure or blocking government investments. These are among the most debatable measures taken by the post-2000 Romanian government heads. The past mistakes could be a lesson for future politicians
A recently published poll indicated that 20% of the Romanians believe the best post-1989 Prime Minister was Calin Popescu Tariceanu. Adrian Nastase came second, with 15%, followed by Emil Boc, with 12%. It’s noticeable the long contested Prime Minister who was unlucky enough to reach this position during the economic crisis is more appreciated than the current head of government, Victor Ponta (who was chosen by only 10% of the responders).
Mihai Razvan Ungureanu received only 1% of the “votes” (but he also spent only two months at the Victoria Palace), the same as most pre-2000 Prime Ministers (Theodor Stolojan, Nicolae Vacaroiu and Radu Vasile). Petre Roman (with 2%) and Mugur Isarescu (with 4%) have slightly better positions. 2% of the responders believe there was no good Romanian Prime Minister between 1989 and 2014, while about 32% of them chose the ‘I don’t know/I don’t want to answer’ option.
Most of the opinions are obviously subjective. On many occasions we are in fact dealing with a trip back to the past, to a time when everything was better (finances, health or family life). This might explain the good score obtained by Tariceanu, whose term overlapped the economic boom. In reality, both the former National Liberal Party (PNL) leader, but also the other post-2000 Prime Ministers have made both good and not so good –if not catastrophic- decisions.
Nastase – no flat rate tax
The former Social Democrat Party (PSD) leader will remain in history as the first Romanian Prime Minister sentenced to jail for corruption, but also for the way he attempted to gather all the power while he was the head of government (2000-2004). Fewer people remember that, even if he flirted for several years with the flat rate tax, Nastase avoided implementing it. The measure was taken by the centre-right cabinet installed in 2004 (having Adriean Videanu and Ionut Popescu among the supporters) and proved to be a huge success – even if tax rates dropped, the government revenues grew year after year.
Despite clear evidences, Adrian Nastase kept on criticising the flat tax, especially the personal income flat rate tax. “This tax is supported not even because it illusory economic effects. It’s only a political caprice, generated by some people’s despair to appear as right-wing politicians”, he was saying in 2010 pleading for going back to the progressive taxation.
Tariceanu – the expenditure boom
Even if he was chosen as the most beloved post-1989 Prime Minister, Calin Popescu Tariceanu took some measures that made people happy in the short term, but had a disastrous impact in the medium term. During his term (2004-2008), the number of civil servants grew by several hundreds of thousands, exceeding one million. On the top of that, their salaries significantly increased. So that the personnel expenditure augmented from 21 billion RON (6.3% of GDP) in 2006 to 43 billion RON (8.4% of GDP) two years later.
Everything came with a price: the government debt rose (in 2008, when the GDP increased by more than 7%, the budget deficit surpassed 5% of GDP) and the money obtained from the privatisation process was ill-spent (it was supposed to be used for infrastructure projects). “The National Development Fund practically has no money. There is no real money there, only fictitious money. Mr. Tariceanu spent the money he obtained from selling the Romanian Commercial Bank –over three billion euros- and other companies. On what? Only he knows”, revealed in January 2009 the new Prime Minister Emil Boc.
Boc – VAT and the minimum tax
Many people criticised the current Cluj Napoca mayor for cutting 25% of the civil servants’ salaries in 2010, instead of reducing the funds allocated to public investments (the model currently applied by Victor Ponta). Others believe that Boc should have taken advantage of the crisis in order to significantly shrink the number of civil servants that his predecessor boosted. But most probably one of the least inspired measures taken by the cabinets he ruled between 2009 and 2012 was to increase the VAT.
It’s already known that lifting the value-added tax from 19% to 24% wasn’t the first option – the pensions were initially supposed to be temporarily reduced by 15%, but the Constitutional Court rejected this decision. So the government got to plan B – the money necessary for keeping the budget deficit under control was obtained by rising VAT. Which proved to be anything but temporary – despite its campaign promises, the following Ponta cabinet didn’t decrease it so far, not even by a percentage point.
The minimum tax (in fact a compulsory turnover tax to be paid by any company, irrespective of being profitable or not) proved to be, at its turn, a not very inspired movement. In exchange for some safe revenues and for some hypothetical impact on the tax evasion, the Boc cabinet strongly affected the small companies, which were already struggling to survive the crisis.
MRU – the failed privatisation
As he was in power only a little bit over two months in the spring of 2012, the Mihai Razvan Ungureanu cabinet didn’t have time to make a splash (even if some of its ministers seemed promising) nor to disappoint. If he can be criticised for something it’s the failed privatisation of Cuprumin. Some people affirmed the numerous conditions the Canadian buyer had to fulfil were too severe and that the Bucharest officials didn’t show any flexibility.
Ponta – taxes and investments
In only two years and a half, the left-wing ruling coalition led by the Social-Democrat Party came with dozens of new or increased taxes. Among them, the tax on natural resources extraction, the famous utility pole tax or the farming income tax (all new) or increased excises, property and vehicle taxes. This despite the campaign promises not only didn’t mention new or increased taxes, but also underlined the VAT and the social contribution will decrease. So far, only the social contributions were recently diminished by five percentage points, but the business community fears the government will take back next year what it gave this year.
Another erroneous strategy, which was imposed by the proven inability of increasing the government revenues (even if the economy apparently grew until recently) or of decreasing the non-productive expenses, was to significantly reduce the public investments. In the first eight months of 2014, 14 billion RON was assigned to such projects, over five billion RON less compared to the same period of 2012. The direct impact of this decision over the infrastructure projects and the indirect impact over the whole economy are easily foreseeable.
5.7%
of GDP was the budget deficit in 2008, the last year when Calin Popescu Tariceanu was Prime Minister. That despite the fact the economy grew by over 7% and billions of euros from privatisation had been cashed
40%
was the personal income tax payable until 2004 for that portion of a salary exceeding 13 million ROL (at that time, about 300 euros). The other rates of the progressive tax were 18%, 23%, 28% and 34%.
19%
was the VAT rate until the summer of 2010. As result of the VAT being lifted to 24%, each Romanian paid on average 2,500 RON more to the state in the last four years
5
billion RON is the drop in public investments expenditure in the first eight months of 2014 compared to the same period of 2012. The 28% decrease equates to hundreds of blocked infrastructure projects