Romanian Senate Approves Tax Cut, Opposes Cabinet

Romania’s Senate approved a cut in the country’s flat income-tax rate to 10 percent, which now heads to the lower house where the government likely will use its majority to reject the proposal.

The move aims to raise budget revenue by encouraging tax payments and help the economy emerge from its worst recession on record, Senator Iulian Urban said by phone from Bucharest today. The cutting of the rate from the current 16 percent would match Bulgaria as the lowest tax rate in the European Union.

Romania’s government opposes the tax reduction, saying it would cut revenue. Prime Minister Emil Boc’s Cabinet raised the value-added tax by 5 percentage points to 24 percent from July to meet the terms of an international bailout of 20 billion euros ($27 billion). It also cut public wages by 25 percent to narrow its budget deficit.

“The government doesn’t support this flat-rate cut and its 2011 budget envisages a 16 percent income and corporate tax,” Finance Minister Gheorghe Ialomitianu said today in the Senate. “I’m confident this initiative will be rejected” when it goes to lawmakers in the lower house for final approval, he said.

The Balkan nation, which secured a bailout from the International Monetary Fund, the EU and other lenders last year to shore up its economy, must narrow its budget deficit to 6.8 percent of gross domestic product for this year from 7.2 percent last year under terms of the credit.

It must also approve a 2011 budget that trims the deficit further as a sovereign-debt crisis in Ireland, which is under pressure to raise its 12.5 percent corporate tax rate after seeking a bailout, reverberates throughout the 27-nation bloc.

The tax cut will have a negative budget impact of about 1 percent of GDP, Deputy Finance Minister Gheorghe Gherghina was quoted by news service Mediafax as saying.

Romania must also enact a unified wage law and revise consumer-credit and pension rules to qualify for 2.4 billion euros of bailout loans by March next year.

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez in Prague at jagomez@bloomberg.net

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