The fiscal policy is one of the most important economic projects of the future government, in the midst of financial crisis, but especially if it would want to revive the real economy, given the already-drawn expenditure plan for next year.
The future government will be forced to raise taxes, if it plans to stimulate the real economy, considering the already-drawn expenses for next year, said Lucian Croitoru (photo), monetary policy councilor at BNR.
Therefore, the tax increase seems inevitable, in the context of nearly 3% budget deficit at the end of 2008, but the policy response would be enacted to late, according to Lucian Croitoru.
“If they would want to back up the economy with resources from the budget, and the budget deficit nears 3% of GDP, there are two solutions left: you review the priorities in budgetary expenses, or you raise taxes”, Lucian Croitoru added.
“The only thing that can be made is to resize the sectors that receive these salaries and I don’t think this can be achieved in one year”, he concluded.
Tax increase is inevitable
The second possibility mentioned by Croitoru is the tax increase, starting with the enforcement of measures to back up the economy.
“Tax increase is required right after the support measures have been implemented”, said Croitoru.
He also mentioned that the Government will have to stick to a size that allows it to continue the real convergence process, without putting the economy out of balance.
“Romanian government is small; we should have revenues constantly near 36% of GDP. Tax increase is inevitable, whereas I think it will be enacted too late. When economy is going down, and you come up with this measure, you will only put the brake more aggressively”, representative of the central bank stated.
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