Romania Warned Against Dangers of Tax Cuts

Romania's fiscal watchdog, the Consiliul Fiscal - Fiscal Council - has echoed concerns over government plans to start reducing Value Added Tax and income tax as a way to boost disposable income and get people to spend more.

"These plans are based on overly optimistic revenue estimates and pose an extreme risk of doing permanent damage to state finances," the Consiliul Fiscal said in a statement.

The consultative body added that the tax cuts would lead to major deviations from the medium-term budgetary targets, creating deficits above 3 per cent by 2019, against a target of 1 per cent.

The organization estimates that the measures would increase the deficit by 3.3 billion euro next year, rising to 6.3 billion euro by 2019.

Prime Minister Victor Ponta on Tuesday rejected the fiscal council conclusions, saying they were always downbeat.

"They have always given us negative opinions since we have been governing. If they see the economy in a different way, it's normal that we don't meet in the middle of the road? We respect each other and that's all," Ponta said.

Criticism also has come from the International Monetary Fund, which last week said that the planned cuts risked undermining five years of progress in cutting the fiscal deficit.

Ponta seems to have decided to press on with his plans, however, saying he hopes parliament will approve the tax cuts by the end of June.

Early this month, the government unveiled plans to cut VAT from 24 to 20 per cent, and reduce taxes on meat, fish, vegetables and fruit to 9 per cent from next January onwards.

The changes are part of the new fiscal code, which is now undergoing public debate before going to parliament for approval.

The current flat tax on income and profit...