Tax Hikes Might Push 50,000 Cos Into Bankruptcy, Up Inflation To 10% - Romania PM

Speaking in Parliament on Monday, as the Government seeks the lawmakers' confidence vote for the two laws that make up its austerity program, the prime minister presented the results of various scenarious conducted by the National Prognosis Commission, and compared the impact of tax hikes with the effects of salary and pension cuts.

According to the prime minister, the Commission's scenarios revealed that hiking VAT and the flat tax would have pushed at least 50,000 companies into bankruptcy, increased inflation to 10% and "significantly" depreciated the Romanian leu against the euro. The data presented by Boc also indicate that tax hikes would have lowered end consumption by 4.4%, compared to a 2.6% decrease triggered by salary and pension cuts, would have increased the number of jobless people to 850,000, compared to the current estimate of 750,000 jobless people triggered by salary and pension cuts, and would have increased the number of employees for whom contributions are not paid by an additional 90,000 people.

Boc also said the country's gross domestic product would drop 2% in 2010 and 1.5% in 2011 if taxes were hiked, whereas salary and pension cuts are poised to trigger even a slight economic growth in 2011. Furthermore, tax hikes would limit foreign direct investments to EUR2.7 billion this year, compared to EUR4.5 billion under the current taxation system, the prime minister said.

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