Controversies over the contribution to the Social Security Fund

How can the reduction of employers’ contribution to the Social Security Fund be compensated for?

This is a question that the Romanian head of state, Traian Basescu, asked the Government prior to promulgating the law.

The measure is supported by the president, the opposition and business people alike, but they all want to know how the costs entailed are to be covered and also about the effects of its implementation.

Last week, at the meeting they had with President Traian Basescu, Prime Minister Victor Ponta and Finance Minister Ioana Petrescu failed to provide solid arguments, so the president voiced his concern that the reduction by 5% of employers’ contribution would translate into higher taxes and would discourage investments.

On Tuesday, the Prime Minister and the Finance Minister met with business people, to present them with the benefits of enforcing the measure starting October 1st this year.

According to the Prime Minister, the measure is sustainable, necessary and possible to implement, and now is the right time for Romania to do it.

He added that the cost entailed, standing at approximately 4.8 billion lei per year, can be covered by additional collections of contributions generated by new jobs, additional VAT contributions from potential new investments, debt collection from insolvent companies and also by curbing tax evasion.

"The most important effects that we envisage are creating new jobs, supporting and stimulating foreign direct investments, recovering debts from private companies, curbing tax evasion and the taxation of a significant number of jobs. Unless we take this measure now, in a year when the conditions are so favourable, we will never take it" Prime Minister Victor Ponta said.

The business people participating in the meeting assured the Prime Minister that they supported the reduction, provided it could be applied on medium and long term.

"We believe that this measure is very good for the business environment, as we all know that taxation in Romania is way higher than the European average and also than the average rates in the neighboring countries. We believe that there are two things than need to be better considered: first, improving the collection of contributions to the budget and rendering budget allocations more effective" Angela Rosca, member of the Coalition for Romania’s Development said.

The opposition parties too support the measure, except for the People’s Movement, which says that the measure is good in principle, but should be defended by economic, not electoral arguments.