Romanian lawmakers push for value-added tax cut on foodstuffs
BUCHAREST – Romania’s upper house of Parliament voted for a cut in value-added tax on staple foods to 9 percent from 19 percent yesterday in a move which the finance minister and prime minister said could harm the budget. But analysts said the bill may fail to get the necessary backing of the lower house. «This decision has a highly populist character and it’s obvious that in the long run it can have a perverse impact on the budget,» Finance Minister Sebastian Vladescu told reporters. The bill was proposed by the ruling centrists’ junior partner, the Conservatives, who say it would depress prices and help the poor to face European Union entry challenges. Romania, which hopes to join the EU in 2007, plans to cut the budget deficit to 0.5 percent of gross domestic product this year from about 0.8 percent in 2005. It needs to spend more to upgrade its crumbling communist-era infrastructure and the International Monetary Fund has urged the government to boost taxes in order to balance the budget. The centrists, who have a fragile majority in Parliament, say low taxes should boost much-needed investment but they have rejected calls to lower VAT. «We would register a bigger deficit in the budget if this bill clears Parliament,» Prime Minister Calin Tariceanu said. «Our computation shows that the budget gap might rise to as much as 0.8 percent of GDP (if the VAT is cut).» The proposal to slash VAT for bread, milk, eggs and meat cleared the Senate by 55 votes to 34. Politicians say the proposal might have also got backing from some MPs from the Democrat party, which together with the Liberals forms the core of the ruling coalition. «I know that I voted in favor of lower prices for the staple foods,» Democrat Senator Maria Petre told private television station Realitatea. However, Democrat party leaders said the VAT cut plan had never had the party’s backing, and analysts said its chances of clearing the lower house in a vote expected next week are slim. «There is a big chance the bill won’t pass Parliament. Romania does not need this reduction,» economic analyst Florin Petria said.
