BUCHAREST (Reuters) - Romania’s President Traian Basescu sent back to parliament a planned social security tax cut by the government on Wednesday which he says will hurt budget revenue.
The cut was approved by Prime Minister Victor Ponta’s leftist government in June and endorsed by parliament earlier this month, going against a recommendation from the IMF which leads a 4-billion euro aid deal for Romania.
The president, who can veto bills approved by parliament only once, has warned that such a move could put the country’s macro-economic stability at risk and inevitably trigger higher taxes elsewhere.
Romania is the European Union’s second poorest member and Ponta’s government had said the move was intended to boost economic growth.
“I have reservations regarding its sustainability,” Basescu told reporters.
He pointed out that a 0.9 percentage point reduction in the fiscal deficit would be required next year at a time when Romania has already committed to increase its defense budget.
The 5 percentage point cut in employers’ tax to 15.8 percent from Oct. 1 will create a revenue shortfall of 850 million in government finances in the fourth quarter of this year. The government had said it planned to cover that with higher-than-expected returns from a tax on special buildings.
Ponta has offered assurances that the budget deficit will not rise above this year’s target of 2.2 percent of gross domestic product. In 2015, the social security tax change will cost 4.8 billion lei, just under 1 percent of GDP.
The International Monetary Fund has postponed a review of the aid deal pending a Nov. 2 presidential election. Concerns about fiscal discipline have been raised in the run-up to the vote.
Reporting by Radu Marinas; Editing by Sonya Hepinstall