Weekly review: new tax fuels political war in Bucharest and the PM’s encrypted thoughts

Weekly review: new tax fuels political war in Bucharest and the PM’s encrypted thoughts

 

By Daniel Stroe – Bucharest

A fuel tax introduced by PM Victor Ponta and which went into force on Tuesday unleashed a political storm in Romania with the head of country, president Traian Basescu, putting pressure on the government to withdraw what he called an abusive measure which is set to cripple the economy and harm the population. The week ended with a strange message Ponta wrote on Facebook and which suggests he may withdraw from politics at the end of the year, leaving many bewildered.

The 7 Euro-cents excise sent the diesel prices in Romania above those existing in France and Germany where salaries are at least seven times higher. But the increase of fuel prices will also generate an avalanche of rise in the price of other products, especially food, since many are delivered by road transporters. The government assesses it will raise about 2.5 billion lei (about 560 million Euros) annually from the new tax and said the money will go into building highways, even though such projects can be done with European money. “This money will go to infrastructure, it will sustain projects” Ponta argued on Tuesday, rejecting claims the money will be used solely for electoral purposes.

 

“Don’t think I am a masochist (Basescu had called Ponta a sadistic in a press conference on Monday). If I could say: dear folks, there will be no tax in 2014, if I had this miraculous element, I would have done it. I have never and I will never apply a tax that will affect the ordinary citizens of this country, especially those with low income”, Ponta said in a talk-show, defending his new tax which is likely to cost him in terms of public image. In an attempt to defuse tensions, the PM signed an order to return 4 out of the 7 Euro-cents to road transporters who had threatened to fuel abroad and thus annul the government’s calculations.

 

The measure would only create more fiscal chaos and encourage tax evasion, Basescu warned. “The Fisk will get trucks of invoices from people who have never fueled and the government will return 4 Euro-cents, which will mean a heavy blow to the state’s budget” Basescu warned yesterday. “A fiscal evasion niche will thus be created” he added. At the same time, the decision to return 4 Euro-cents will also incur administrative costs, the president pointed out. “The fiscal system will deal with something hard to manage; there will be high administrative costs. They will have to find public servants to check the receipts; this will be a titanic work” Basescu concluded.

 

The barbs traded between the first men in the country didn’t stop here. Basescu went on to criticize the government’s fiscal policy which is backed by the IMF. “I am saying the government-projected fiscal policy and backed by the IMF is wrong and we risk macro-economic unbalancing risks in the months to come or creating the premises to have them” Basescu said. He added that the social-democrat government led by PM Victor Ponta has introduced 35 new taxes which are “an enormous burden for the economy and the citizens”.

“Unfortunately, the results are not consistent with the expectations” he further said, pointing out that over the past two months state budget incomes have been about two billion lei (about 450 million Euros) below the government’s calculations. “I am sorry, I have always had a partner in the IMF, but this time they are wrong” he concluded, asking PM Ponta to immediately correct his policies.

On Friday, numbers showed the below the expectations financial returns. In February, the money raised by the state budget was 3.5 per cent lower than the amount raised in the same month last year while in March the gap was even bigger, reaching 1.2 billion lei (270 million Euros). Part of the reasons of the poor returns to the state budget is a poorly organized and corrupted revenue service under the control of politically installed people with no financial and managerial skills, warns the Romanian Academic Society, a leading Romanian think-tank, in a report on the fiscal system in Romania. The poor collection of revenues is likely to continue, SAR also warned, without targeting the economic areas which poses the greatest risks, a centralized system and an internal control body.

The political wrangle on fiscal issues is likely to continue between Ponta and Basescu, the latter being very careful about the state of the economy after his warranted austerity measures pass mid-2010 led to a recovery of the economy. Ponta, who will be in the foreground of this year’s presidential elections, may be forced to resort to populist measures to redress his waning popularity which will not spare him of political attacks.

In this context, on Friday, Ponta launched a message on Facebook which left many wondering what the PM really meant. “In November, after we win this final and vital battle (the presidential elections), I wish to leave room to others, younger and less marked by the last years’ horrible regime. And I will seek to recover as much as I can the time that over the past 13 years I did not use for my family and the other good and beautiful parts of my life”, the PM wrote. Ponta refused to translate his message which suggests he may withdraw from politics. But some around him say Ponta actually warned party members not to put so much pressure on him in the perspective of the presidential elections since he is still undecided whether to run or not for the first job in the country. Others say that, on the contrary, Ponta referred to November as a new beginning for him when, as the future president of the country, he will be politically neutral and thus, he will have more time for the family.