Romanian Analysts: Higher Taxes Required To Cope With Electoral Promises

"After this electoral campaign, nobody will afford not to increase the promised salaries, and, in this case, budget revenues should be increased. On short term, these would be achieved by raising taxes,” the vice-president of Financial-Banking Analysts Association in Romania, Lucian Anghel, said Monday.

Most of the analysts believe that the current expenses following the electoral promises exceeds by far the budget’s possibilities, and the only viable short-term solution is to raise taxes, and especially the value added tax, which currently stands at 19%.

“We don’t want higher taxes, but it will be necessary. The debate regarding tax amendments should begin before the end of the electoral campaign," Anghel said.

However, BRD-Groupe Societe Generale chief-economist Florian Libocor said that, despite salary increases, the Government should speed up efforts to improve its revenue collection.

"I am sure that wonders can be made in the tax collection area,” Libocor said.

Pioneer Asset Management’s general manager Florin Dolea said an increase of taxes is probably the only solution, given the expected budget expenses, but said that would trigger an economic slowdown.

The majority of analysts also agreed that the rating agencies have exaggerated as regards Romania, as their arguments for downgrading the country’s rating to “junk” were not very grounded.

The analysts warned over the unfavorable outlook of the Romanian economy in 2009 and advises people to start saving and be more careful.

Earlier in the day, analysts said the Romanian financial markets are seen stabilizing next year and will go back to normal towards the end of 2009.

"The financial market will return to normal in one year, maybe two," Raiffeisen Bank chief economist Ionut Dumitru said at the debate, adding the “fight” has already moved into the real economy.

Fitch Ratings agency said in a report Friday that the global financial turbulence has increased the risks for Romanian banks, as banks’ funding will shrink, the cost of funding will rise and would result in slower economic activities, higher impaired lending and lower profitability.

Ratings agency Fitch has lowered on earlier this week the sovereign ratings on Romania by two notches, citing vulnerabilities in the emerging markets, spurred by the global crisis and the countries’ high current account deficits.

Fitch’s downgrade came after Standard & Poor’s had also lowered Romania’s rating.

Both rating agencies see Romania below "investment grade."