Romania Passes Scaled-Down Tax Cuts After Warnings Over Budget

  • Parliament backs reduction in VAT to 20% starting in January
  • Plans to abolish other taxes now postponed until 2017

Romania passed a package of tax cuts that was scaled down after the central bank and international creditors warned of risks to budget stability.

Lawmakers in Bucharest voted 279 to 8 in favor of the bill, which includes a reduction next year in the value-added tax to 20 percent from 24 percent. Previously approved plans to change or scrap five other levies, a move that had been opposed by the International Monetary Fund and the European Union, were delayed to 2017 to contain the budget deficit.

Prime Minister Victor Ponta, battling corruption charges, is seeking to lure voters with tax cuts and higher wages before his party faces elections next year. Fiscal breathing space has grown in the EU’s second-poorest nation because of rapid economic growth and improved revenue collection.

“The new fiscal legislation will help Romania have higher economic growth than currently and will create more jobs,” Liviu Dragnea, leader of Ponta’s Social-Democratic Party, said after the vote. “I hope the ruling coalition and the opposition will be able to work together to pass other important laws, such as the bill on state wages and the 2016 draft budget.”

The leu, which has appreciated 1 percent this year, strengthened 0.1 percent to 4.4317 as of 12:17 p.m. in Bucharest, data compiled by Bloomberg showed.

The budget posted a surplus of 1.1 percent of gross domestic product at the end of July, allowing Ponta to meet demands from state workers including doctors for higher wages. GDP grew 3.2 percent from a year earlier in the second quarter after rising 4.3 percent in the first.

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