October 26, 2017 / 3:52 PM / in a year

Romania plans minimum wage hike, cut private pension contributions

BUCHAREST, Oct 26 (Reuters) - Romania’s government plans to raise the minimum wage by about 30 percent to 1,900 lei ($485) from 2018, to offset the effect of shifting the burden of social security taxes to employees, and reduce payments to a mandatory private pension scheme.

The moves, announced by Labour Minister Olguta Vasilescu and Finance Minister Ionut Misa at the start of the cabinet’s weekly meeting, will be part of next year’s budgetary framework, which is expected to be approved over the next week.

The Social Democrat-led government had already announced it would cut income tax to 10 percent from 16 percent in 2018 and cut social security payments, which are now jointly made by workers and employers.

It was also analysing whether to cut contributions to a mandatory private pension scheme and redirect some of the funds to the state.

Some analysts are concerned the government may view these contributions as a way to help it deal with a fiscal deficit that threatens to exceed limits set by European Union rules.

On Thursday, Vasilescu announced that contributions to the “second pillar” pension scheme would be cut to 3.7 percent of an employee’s gross wage from 5.1 percent, “but this without affecting the nominal amount paid at present. The percentage cut was needed because of the hike in gross wage.”

Romania overhauled its communist-era pension system in 2008, making it compulsory for working Romanians under 35 to contribute to a second pillar of private pension schemes as well as their state pension.

Just under 7 million people were contributing to the second- pillar scheme, whose assets totalled 36.06 billion lei ($9.28 billion) at the end of June, the equivalent of more than 4 percent of gross domestic product.

The government has gone back and forth on its tax intentions this year, often announcing measures without an impact assessment and then backing out, creating investor uncertainty and weighing on assets.

Misa said employers will pay a 2.25 percent tax on their overall wage fund from 2018 instead of the 2.0 percent announced on Oct. 19. Small companies with annual turnover below 1 million euros are due to pay a 1.0 percent tax on turnover instead of the current 16 percent tax on profit.

$1 = 3.9185 lei Reporting by Radu Marinas

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