Romania Ctrl Bk: Tax Hikes Not Enough To Reduce Deficit

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"The higher taxes will automatically open the evasion faucet. For the past 20 years we've been unable to push revenues above 32% of GDP, therefore the issue must be resolved at the expenditure level," Lucian Croitoru, adviser to central bank's governor Mugur Isarescu, told MEDIAFAX.

Romania's Constitutional Court Friday ruled part of a planned austerity package proposed by the government is unconstitutional, endangering key loan disbursements from the International Monetary Fund and the EU.

The government recently assumed responsibility for a law package including a 25% cut in public salaries and 15% reductions in pensions and unemployment benefits.

However, the Court ruled the pension cuts were unconstitutional and sent the law back to parliament for revision.

According to Premier Emil Boc, the cabinet prepared alternative measures to lower the budget deficit and keep a EUR20 billion IMF-led foreign loan package on track.

Boc said the government will discuss the measures with the IMF and the European Commission, but declined to comment whether the new steps include tax increases.

People familiar with the matter told MEDIAFAX earlier today that the government is considering raising the value added tax level to 24% from 19% currently and the flat tax rate to 20%-22% from 16%.