Romania’s government announced a swath of corporate taxes as part of a plan to raise 10 billion lei (€2.1bn) to address a budget deficit, sending the country’s stock market plummeting.
The measures are being introduced to try to ease a budget shortfall and keep Romania within the EU’s fiscal rules, which allow a deficit of 3 per cent of gross domestic product. The deficit was 2.2 per cent at the end of November, writes the Financial Times.
While Romania’s economy is growing fast, economists predict a shortfall owing to a series of tax cuts and wage and pension hikes championed by the Social Democrat-led government.
“The government has finally arrived in the position in which it can no longer hide the consequences of its populist policies,” said , economy professor at the Romanian-American University, who called the new measures a “poisonous package”.
Romania takes over the rotating presidency of the EU for the first six months of next year, giving it a key role in the affairs of the bloc, but it has been in a state of political, and now economic, chaos as its first term of leadership approaches.
, Romania’s president, on Wednesday appealed for the government to reconsider its proposals. These measures “weren’t discussed with business leaders . . . they’ll throw the economy into chaos,” he said.
“Even worse, they will overdraw the budgets of all Romanians . . . because, ultimately, such [poorly]thought-out, last-minute measures will be borne and paid by ordinary people.”
, Finance minister, said the plans would generate 3.6 bln lei next year. In total, the package amounts to 1 per cent of Romania’s gross domestic product.
The Bucharest Stock Exchange index tumbled 11.9 per cent and was on track for its worst day since 2009, according to Reuters data.
Foreign and domestic banks were hit by the news, with Erste Bank of Austria registering a 10 per cent decline. Romanian Banca Transilvania dropped as much as 21 per cent.
The new taxation on energy companies casts a shadow over planned offshore oil and gas exploration. US major ExxonMobil and Austrian company OMV’s Romanian subsidiary, Petrom, are due to decide next year whether to make a €1bn investment to exploit gas from the Black Sea .
Romania’s 10-year benchmark government bond yield had its biggest rise since March 2017, according to Bloomberg data. Yields rise when prices fall.
The tax rises come after , who leads the ruling Social Democratic Party, launched a broadside against international banks on Sunday, saying “the banking system does not support the economy”.