Jeffrey Franks criticizes the cut of the flat tax rate

Jeffrey Franks, the head of the IMF mission to Romania, criticized the recent vote of the Romanian Senate to lower the taxation rate from 16% to 10%.

The IMF official said, in a press release, that if the law were to get implemented, it would create a major budget deficit in 2011, causing it to overshoot the 4.4% of the GDP threshold, thus preventing the release of the next tranche of the stand-by agreement.

"The frequent revisions of the taxation system create instability for the business sector and undermine the economic recovery", said Jeffrey Franks.

Franks expressed his hope that the cut of the flat rate tax will not implemented and urged politicians to approve a responsible budget for the year 2011, as well as implement the necessary reforms for ensuring Romania"s stability and progress. The IMF official said that revenues are growing, spending is on a downward trend towards more sustainable levels, and confidence in the Romanian economy is returning, domestically as well as abroad.

"The painful but necessary steps taken in July were to solve Romania"s fiscal problems are now beginning to bear fruit", the head of the IMF mission said.

Jeffrey Franks also claims the fact that the Government has reiterated its "strong commitment" for the economic program backed by the IMF, EU, and the World Bank.

Franks concluded by saying that the decision to cut the taxation rate from 16% to 10% was not discussed with the Fiscal Council, as required by the Law of Fiscal Responsibility, and it is not aligned with the government"s medium term fiscal strategy.