March 17, 2015 / 12:36 PM / 5 years ago

UPDATE 2-Romania could cut taxes this year, Ponta says

* Ponta: Q1 fiscal surplus of nearly 1 bln euros

* Says justice system now “completely free”

* IPOs for power firm, airport and harbour in 2015

* Says concerned by Hungary’s ties to Moscow (Adds quote, details, background)

By Matthias Williams and Luiza Ilie

BUCHAREST, March 17 (Reuters) - Buoyed by a healthy budget surplus, Romania could start cutting taxes as early as this year while keeping to a 2015 fiscal deficit target of 1.8 percent agreed with the International Monetary Fund, Prime Minister Victor Ponta said on Tuesday.

Ponta told foreign media reporters the budget had a preliminary surplus of nearly 1 billion euros ($1.1 billion) in the first quarter and also better-than-anticipated foreign investment inflows and exports over the same period.

Asked whether he planned cutting taxes earlier than a previously announced window of 2016-2019, Ponta said: “If we have the fiscal space, we would be stupid not to do it.”

Ponta’s government had announced plans for sweeping tax cuts in February. The proposals will be sent to parliament next week, he said, adding that Romania would convince the IMF that the cuts were sustainable.

The IMF has supported Romania with a series of aid agreements after a real estate bubble burst in 2009 and plunged one of the European Union’s poorest countries into recession. The deals — the last of which expires in September — nudged successive governments to cut the deficit and implement reforms.

The IMF has expressed concerns over the sustainability of previous tax cuts.

“I do not exclude at all the idea that during the year we can give incentive for economic growth,” Ponta said. It was too soon to mention which taxes would be targeted for cuts, he said.

“Any fiscal measures that might be applied this year will be within the 1.8 percent agreed,” he said.

The government planned initial public offerings for power company Hidroelectrica, Bucharest airport and the Port of Constanta later this year, listing stakes of between 15-25 percent each, Ponta said.

Regarding recent crackdowns on corruption, which led to the resignation of Ponta’s finance minister over the weekend, he said the Romanian justice system was now “completely free” of political influence under the rule of President Klaus Iohannis. Iohannis took office after an election in November.

Such crackdowns could push Romania to be accepted into the European Union’s passport-free Schengen zone this year, Ponta said. The EU has so far excluded Romania and Bulgaria from Schengen until their performance in tackling graft improved.

Turning to foreign policy, Ponta said Romania had to beef up its military to counter a threat from Russia, including by doubling its fighter jets to 24. He also expressed misgivings about neighbouring Hungary’s ties to Moscow.

Hungary last year granted Russia’s Rosatom a project to build two nuclear power blocks of 1,200 megawatts each, financed partly by a Russian loan. The deal drew criticism of Hungary for pulling closer to Russia at a time when the EU was putting pressure on Moscow to defuse a deepening conflict with Ukraine.

“I don’t want to talk about a neighbour but I think that Hungary’s position towards Russia is not only a matter of concern for Romania, it should be an issue to discuss at European levels,” he said. (Writing by Radu-Sorin Marinas; Editing Raissa Kasolowsky)

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