THE POSTPONING OF THE CUTTING OF CERTAIN TAXES FROM THE FISCAL CODE Cioloş and Dragnea: first they agreed, then the PM changed his mind

The postponement of the application of some tax cuts stipulated in the current Fiscal Code set to come into effect on January 1st, 2017, made the Cioloş government flip-flop yesterday.

PSD chairman Liviu Dragnea yesterday said, in an interview he gave ştiripesurse.ro, that he talked to PM Dacian Cioloş and he has asked him to consider the option of postponing the VAT cut by one percentage point until January 1st, 2018: "Sure, I told the PM that we would rigorously stick to our Governing Program presented during the electoral campaign and in that regard we have requested reviewing the option of prorogating some of the provisions of the Fiscal Code by one year. For instance, our program stipulated the cut of the VAT to 18% starting on January 1st, 2018, but keeping the current 20% rate in 2017, because we feel that cutting just 1% off the VAT rate this year would not bring any benefits to companies, or consumers".

The current Fiscal Code was passed by the parliament during Victor Ponta's term, in 2015, and businesspeople breathed a sigh of relief at having a set of predictable rules on which to base their businesses.

Now, just a few months before the coming into effect of some tax cuts, investors find out that they may not be applicable after all.

Government spokesperson Liviu Iolu, told Hotnews, at lunch, that Dacian Cioloş was considering the postponement of these measures prior to the phone conversation he had with Liviu Dragnea. "PM Cioloş is considering the prorogations because this government wants fiscal stability and predictability and will do everything for that goal to remain in place", Iolu said.

However, last night, after the press and analysts took note of the new demonstration of politicians' unpredictability, the government changed its tune. The government's press office said in a press release, that as part of the phone conversation with Liviu Dragnea, PM Dacian Cioloş did not confirm that he was accepting the proposal to prorogate by a year some of the stipulations of the Fiscal Code, and he went on to say: "The PM said that he acknowledges and is analyzing this proposal, but several aspects concerning legality and opportunity of the decision need to be considered. On the other hand, PM Dacian Cioloş expects the Social Democratic Party to follow through on its promises and to follow its governing program it presented before the parliamentary elections of December 11th, while also taking full responsibility for the fiscal policy and the legislation that has already been passed in the Parliament".

Other measures for which Liviu Dragnea proposed the prorogation was the cutting of the fuel excises and the removal of the special structures tax, the so-called "pole tax". Dragnea said: "We find that even though the price of oil is at historic lows, in Romania gas prices at the pump are higher than in the EU and that is before including excises, which I find absolutely inexplicable. This makes me think that a significant cut of the excises without a serious talk with the Competition Council would fail to cause a drop in the fuel prices paid by consumers. Once we resolve this situation with the Competition Council we will cut excises by 6% starting on January 1st, 2018 according to our Governing Program. (...) Another item on the agenda concerned the special constructions tax which will have to be eliminated when major Romanian companies will understand that if they make profits in Romania that is where they have to pay taxes - I am referring to the implementation of EC Directive 1164 or other measures which will be approved, in order for companies to pay their taxes here is those profits are made here".

Liviu Dragnea also said that he has also talked to the prime-minister about the minimum wage level for next year: "We have agreed to what has been proposed and I support this approach which I find responsible. I have agreed to the proposals to postpone the application of these measures and as far as the minimum wage is concerned we have agreed that starting next year the new government will approve that minimum level, and we will standing by the goal included in our Governing Program to make it 1450 lei".

Liviu Dragnea also said that the "introduction of the capping of the CASS (healthcare) contributions" no longer fits the PSD governing program, which is also considering "a reduction and merging of the contributions for everybody and the business sector starting with January 1st, 2018".

Less than two days after PM Dacian Cioloş, supported by the PNL and the USR, and the PSD leader attacked each other, the latter praised the head of the government for "thinking first of all of the country's economic stability and unlike others, voting first for the path of dialogue rather than that of a pointless conflict".

Throughout the electoral campaign, Liviu Dragnea spoke about tax cuts for the business sector, but he never mentioned that he would request the postponement of any of any tax cuts tax from the current Fiscal Code, a document which is the basis for the drafting of companies' budgets.

Now, Liviu Dragnea is trying to use Cioloş, who at first appeared to willingly accept that, and later, after the pressure placed on him by the media, took a more nuanced stance.

What is certain is that once again fiscal predictability that the business sector longs for is affected.