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Romania Maintained Current VAT Level To Avoid Inflation Rate Increase – Ctrl Bker

Romanian Adrian Vasilescu, an adviser to the central bank governor, said Sunday that a value added tax increase from 19% to 24% would have lead to a two-figure inflation rate, making it impossible for Romania to access foreign market loans, although the country depends on foreign capital.
Romania Maintained Current VAT Level To Avoid Inflation Rate Increase – Ctrl Bker
30 mai 2010, 14:42, English

Vasilescu said during a Sunday show on national TV channel ProTV that a 15% inflation rate would turn Romania into „the black sheep of Europe”. He added that by adopting the VAT increase proposed by the International Monetary Fund, Romania would have been denied all foreign loans and would have had to make do with its own small capital.

According to Vasilescu, a rapid increase of the inflation rate would have postponed the end of the recession „by several years”.

Vasilescu added that the IMF called for a reversal of the current budget deficit trend. During the past years, Romania’s budget deficit has grown from 2.5% of the GDP, to 5.4% of the GDP, to 8.3% of the GDP in 2009.

The governor’s adviser explained that an inflation rate increase would seriously affect the entire population’s purchase power, leading to worse results that pension and public sector wage cuts. However, the central bank official admitted that the Government’s measures do not represent an anti-recession plan.

Romania has promised to keep the budget deficit under 6.8% of the GDP this year, by drastically cutting public spending, in an attempt to avoid an increase of the major taxes, the VAT and the flat rate.

On the other hand, the Government announced several measures to enlarge the taxation pool, such as taxing bank interests, food vouchers and stock market gains.