Romanian Union Leader Proposes Gradual Hike In Income Tax Instead Of Wage Cuts

Hossu voiced these proposals in a meeting Friday with Finance Minister Sebastian Vladescu, which targeted to find ways to cut expenses in the public sector.

One of the proposals discussed Friday targets to keep the flat tax at 16% and to gradually increase the income tax, in ratio with an employee's income, and to lower taxes on low salaries. Thus, a 14% or 16% tax was proposed for incomes up to 3,000 lei (EUR1=RON4.1874), a 25% tax for incomes exceeding RON3,000, and the highest tax of 38% or 40% was proposed for incomes of RON8,000 to RON10,000.

According to Hossu, the current 16% flat tax can only put continuous pressure on small taxpayers.

Hossu's second proposal consists in eliminating or at least suspending the transfer of funds, which represent employees' social security contributions, from the public to the private pension system, in order to ensure enough resources for the public pension fund.

Hossu pointed out that he will also present the two proposals to Romanian President Traian Basescu, at a meeting scheduled Sunday, May 9.

The union leader said he did not talk with Vladescu about layoffs in the public sector, adding that government officials prefer to push for spending cuts, by reducing the salary fund, rather than for layoffs.

Romania's five union federation leaders said in an open letter Friday they want to have an emergency meeting with President Basescu and Prime Minister Emil Boc before the agreement with the International Monetary Fund is finalized.

Basescu on Thursday said the Government's program to reduce spending and boost revenue entails a 25% cut in public salaries, 15% lower pensions and limited subsidies, particularly in agriculture.

Basescu stressed that Romania is forced to drastically cut public spending to avoid raising its main taxes and called on unions to assume their part of the responsibility for the allotting of funds in public institutions.

Romania's recession-hit economy contracted by 7.1% last year, after three years of annual growth of nearly 8%. This year's budget gap must be narrowed to 5.9% from 7.2% last year, to meet the terms of a EUR20 billion IMF-led bailout loan.

The IMF team is currently in Bucharest for the fourth review of Romania's EUR13 billion loan agreement signed in the spring of 2009.

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