The general consolidated budget of the State cannot bear a CAS (social security contributions) reduction by more than 3 percentage points next year, i.e. from 52% to 49%, Finance Ministry sources told Ziarul Financiar. The decision will be a political one eventually, as a five-percent CAS cut is already rumoured.
"It would be too great an effort to operate a 5% cut, because it would add up to the effects of introducing a low VAT quota. If this taxation cut is to be operated at all costs, then cuts will need to be done in other sectors, as well, certain projects will have to be either postponed or cancelled," the quoted sources say.
Even the International Monetary Fund itself welcomes a cut in the social security contributions, which are the highest in the entire Europe.
The Finance Ministry's problem is how to cover the revenue drop induced by a taxation cut and expand the taxpayer base, which generates higher revenues from smaller taxes. This is precisely why a single agency to collect the social security contributions will become operational next year, as recommended by the IMF. In order to prepare this agency, the Finance Ministry undertook setting, controlling and collecting CAS as of May 31.
The low collection capacity has also shown in the first four months of this year when the revenues derived from pension, unemployment and healthcare systems-related contributions fell 4.5% in real terms compared with the same time in 2002. The Finance Ministry blames this decline on the five- percent total CAS cut as of January 1, 2003.
One thing is certain and that is taxation must go down. The immediate solution: "There is only so much revenue, the deficit is ironclad, so that the only thing left to do is cut spending," the quoted sources added.
The talks with the IMF experts on the budgetary situation for the first half, over the budgetary adjustment and the 2004 budget draft are due to begin at the Finance Ministry on July 15.
The Finance Ministry is trying to get the IMF and the European Union to agree to a higher deficit for next year, pledging to invest the additional amount in highways only.
The best case scenario has the deficit up by more than one percentage point compared with this year and reach 3.7% of GDP. In case the IMF and the EU do not agree to this figure, the Finance Ministry hopes it could get at least 3.4% or 3.5%.
The Finance Ministry officials say the preliminary data on the budget situation for the first half do not point to problems, as the margin is wide enough to allow for compliance with the full-year deficit of 2.65% of GDP. The Finance Ministry and the IMF team will recalculate their estimates on the full-year budget revenues and also decide what expenses can be avoided in the second half. This year's revenue estimates amount to 30% of GDP. razvan.voican@zf.ro
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