Isărescu: Increasing wages beyond the levels allowed by our current productivity will leave us unable to pay pensions

Wages and pensions will be lowered beyond the productivity levels of the economy, the governor of the NBR, Mugur Isărescu warned yesterday. He said that this correction could be done in a transparent manner, by cutting back on public sector spending or raising taxes, or in an insidious manner, through inflation.

"It has been repeatedly said that the pension budget has enough money, but that is no longer true. The NBR permanently warned that all the wage increases weren"t backed by a rise in productivity and that sooner or later there would be a correction", said Isărescu, in a seminar held by the Central Bank. He said that raising taxes would cause a drop in population income and at the same cause inflation to rise.

"The correction can be done in a furtive manner, dangerously and unfairly, through inflation alone, in its various forms. Inflation is in effect an unforeseen tax, which occurs in an economy and a society. It needs to be avoided", feels Isărescu. He added that the only solution for tax receipts to increase is the creation of jobs.

"The only solution to make sure we get reasonable receipts to the state budget is to make these corrections in a transparent manner, by implementing measures that would create jobs. Jobs are the only way the government can raise taxes and social security contributions", says Isărescu, who added: "If we tax the public sector employees and the pensioners, all we are doing is redistributing the same amount of money. It is obvious, but we still act like it isn"t. This is the true source of revenues, jobs". The governor of the NBR also added that the number of people contributing to the budget is far lower than the ones receiving compensation from the budget.

"There is less than 3 million taxpayers for six million people who get paid pensions and unemployment aids. This is something that can not work", Isărescu said.

Through the agreement with the IMF, the authorities have committed to lower public spending, in order to meet a budget deficit of 6.8%. As a result, the government plans to cut 25% off public sector wages and 15% off pensions.

The official of the NBR reminded of his difficulties in reducing inflation from 7% to 4%. The NBR revised its inflation rate forecast for the end of the year, to 3.7% up from the previously predicted 3.5%.

The Minister of Finance, Sebastian Vlădescu, said early this week, that without the additional measures agreed upon with the IMF, the public debt which currently stands at 30% of the GDP, could have grown to around 40% at the end of 2010 and 50% in 2011.

He explained that the 6.8% deficit that on the back of the 6.% deficit agreed upon with the IMF, the government needs to borrow more, without rolling over the current obligations, of 7.5-8 billion Euros, which would put the public debt at 36-37% of the GDP this year and at 40% next year.

Without the additional measures, for a forecasted deficit of 9.1% of the GDP, without the additional measures, the amount to be financed would climb to 10.5-11 billion Euros, and in 2011, after an adjustment of the deficit from 9% to 7%, by another 8-9 billion Euros.