It is moral to state aloud what you are, it is moral to be consistent in affirming your own beliefs, it is moral to think in the long run, it is moral to affirm your own identity. It is moral to have the courage to say you are different from the others, even if the others represent, for the time being, the majority.The government is taking into consideration increasing VAT to 25% and the flat rate to 20%. This, however, would be a step too far.
Excessive taxation, the increase of the bureaucratic apparatus, the ridiculous proposals for new taxes (besides the existing 484 parafiscal taxes in existence) are clear indications of a government which has lost all sense of direction.
The solutions are based, mainly, on fiscal relaxation, by adopting as soon as possible a flat tax of 10%, while at the same time decreasing VAT to 15%. It is the only way to accelerate capital accumulation, increase investments, create new jobs and increase the living standards for Romanians.
What the Boc government did not do to fight the crisis
1. The most important measure taken by the government, and possibly its greatest mistake, was the introduction of the minimum tax. Succinctly, it is a tax that says “Pay up or die!”. Finance Minister Pogea expressed it clearly: “If you cannot pay 500 euros to the state, than close down.” The consequence: over 100,000 companies have closed and over 50,000 people have become unemployed. In the short run, the state budget has obtained a few hundred million euros, but in the long run it has lost more by suffocating economic initiative, increased unemployment rate and the public spending associated with it.
Minimum tax kills the entrepreneurial spirit
According to the data provided by the Registry of Commerce, over 133,000 companies have voluntarily suspended their activity for 2009, 1009.59% more than in 2008. 18766 companies have been voluntarily dissolved, and 43615 have been expunged from records.
2. Instead of decreasing the bureaucracy, the government has decided that all companies must certify their declarations regarding profit tax before a fiscal consultant – an unnecessary and burdening measure.
3. Exemption from taxation for re-invested profit. This will not aid the business environment, but will merely distort the competition in favour of those companies which have the necessary capital to invest in actives. Eventually, companies will use this loop-hole to minimise their dues to the state, while not purchasing items automatically beneficial.
4. Exemption from social taxes for those companies which do not fire their employees, but merely list them as technically unemployed. This measure only encourages subterranean economy.
The encouragement of technical unemployment is a discriminatory measure
According to a PricewaterhouseCoopers study from December, only 16% of the private companies have used in 2009 this measure, while 8% opted for non-paid holidays. This is a discriminatory measure, giving an advantage to large industrial companies, which can gradually reduce their activity. Often, the small entrepreneur cannot opt between using more or less of his employees, but between continuing or ceasing production altogether.
5. In February, the government has announced it would exempt from social contributions those companies which take on unemployed. This measure, however, on its own, is not capable of decreasing the rate at which unemployment is soaring.
6. Reducing taxes and parafiscal taxes from 491 to 302. To a good extent, this is a misinformation, as only 42 taxes have been eliminated, the rest being amalgamated.
7. Abolishing the plan to reduce social contributions. This is yet another measure which accelerates the crisis, shattering any expectations employers might have still entertained.
All in all, none of the measures taken by the authorities have any hope of success in reinvigorating the economy. It is true, as the Prime Minister has avowed, that the State cannot take the economy out of the crisis, but he has forgotten to mention that the State can make the economy much worse.
Sebastian Vlădescu isn’t supposed to invent anything.
The Minister of Finances should know that the wheel has been invented a long time ago. Las summer, Nobel laureate Edward Prescott held a conference in Bucharest, during which he stated that the only way to overcome the crisis is to reduce the fiscal burden.
The government undermines the prosperity of Romanians
Increasing the fiscal burden during the crisis and progressive taxation, serious economic errors
The philosophy exhibited by the public finances is in stark contradiction with the principles of healthy economic development. Companies are imagined as simple sources of money for the state budget, not as economic factors and providers of jobs:
• Romania has one of the largest fiscal burdens in the EU
• Romania is on the last place in Europe in terms of ease to pay taxes
• In Romania, companies make 113 payments to the state budget
• In terms of time spent paying taxes, Romania ranks 74th, with 202 hours each year
• Companies pay the largest number of taxes in Europe, twice as much as in Poland or Slovakia
The fiscal burden placed on the shoulders of Romanians defies any economic principles.
• Taxation and the administration of the taxation process is, in the opinion of businessmen, the most important factor discouraging investments.
• No country has ever developed through high taxation rates. States such as Singapore or Hong Kong have found prosperity through very low tax rates.
• Flat rate tax is perfectly justifiable, both ethically and economically. Morally, the flat rate involves transparency and equality of treatment for all contributors. Economically, it leads to an increase in the taxation potential and encourages entrepreneurship. Thus, immediately after introducing the flat rate tax, budget income has increased by 8% (first trimester of 2005 compared to the similar timespan of 2004).
Conclusions
Given all the above arguments, we may characterise the increase of the fiscal burden during the crisis or the proposals to revert to a progressive taxation system as serious economic errors. Their only effect is to undermine the prosperity of Romanians.
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