IMF Recommendations Focused On Increasing Romania’s Budget Revenue

In talks with Romanian authorities, the International Monetary Fund focused on increasing budget revenue by hiking the VAT and flat tax, as well as introducing progressive taxation, but certain difficult expense cuts would have been included in any scenario, says a Fund press release.

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Jeffrey Franks, head of the IMF's mission to Romania, says in the press release that, because of the budget deficit, expenditure cuts would have been included in any scenario. He adds that Romanian authorities and the IMF are in complete agreement regarding the need for corrective measures to tackle the country's difficult situation.

According to Franks, the Romanian government's focus is on reversing what appears to be unsustainable growth in public spending in the last years.

The IMF official also said the Government has the last word on which steps to take. The Fund is confident that the Romanian administration will succeed in keeping the budget deficit within reasonable limits in 2010, says the press release.

IMF head Dominique Strauss-Kahn told a French television station that the IMF proposed tax hikes, especially for the wealthy, but Romanian authorities decided to cut wages in the public sector. Strauss-Kahn thus left to be understood that the IMF proposed the implementation of progressive taxation, with higher taxes for the wealthy.

"The IMF constantly came with the proposition to cut public spending by at least 20%, raise the VAT at 24% and the flat tax at 20%. All scenarios discussed with the IMF involved the immediate reduction of public sector wages by at least 20%," Romanian Finance Minister Sebastian Vladescu said in reply.

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