Gabriel Biriş: "The fiscal package proposed by the Government is the lesser evil”

Tax consultant Gabriel Biriş, a lawyer and former secretary of state at the Ministry of Finance during the Cioloş government, claims that the package of fiscal changes proposed by the Bolojan Cabinet is the lesser evil.

Gabriel Biriş told us: "The new tax measures will have an impact on everyone, whether we are talking about companies that borrow from banks, whether we are talking about ordinary citizens who will buy goods and services with higher VAT, or whether we are talking about companies that pay increased excise taxes on fuel. All tax increases will be reflected in prices. But at this moment, the Bologna government could not do anything else, because it had to choose between two evils: the lesser evil - tax increases and the cuts that have begun, because I hope that the reduction of the increases in the budgetary system is just the beginning of the reform, and the greater evil - the downgrade of the rating granted to our country and the loss of European funds. Therefore, taking into account that measures were needed that would produce short-term effects and that would give confidence to institutional investors and rating agencies, I do not think anything else could be done at this moment. It is obvious that all tax increases will inhibit economic growth and we will probably even register a decrease, but in this case we are talking about a soft-landing, a controlled landing. If we had a downgrade, we would have a disaster”.

The fiscal expert states that the measures proposed by the Government should be enough to balance the state budget, recalling that they were taken in light of the risk of a downgrade, given that representatives of the Fitch rating agency were in Bucharest last week where they discussed with the central authorities.

Gabriel Biriş also pointed out: "However, among the measures proposed by the Government, the most dangerous seems to me to be the 4% tax on banks' turnover. I remember that in 2018, when the so-called greed tax was introduced, the rating agencies stated that such a tax affects the banking system, the health of the financial system and that they will reduce our country's rating. I hope that the current rulers have ensured that this will not happen. Last year, the banking system had 14.2 billion lei profit on 70 billion lei turnover. This profit can cover the tax increase desired by the Government. But what do we do if we end up in a situation where non-performing loans increase, banks start making losses and have to pay tax on turnover? It is clear that the reasonable profitability, i.e. somewhere around 20% of the Romanian banking system last year, is mainly stimulated by the massive state loans, which pays very high interest rates, with very low risks. Basically, at the moment, the state is competing completely unfairly with the business environment for loans, and this is suffocating the entire economy. At a time when the state is paying interest rates of over 7%, the bank will not grant a private individual a loan with an interest rate of less than 8%, because it is a higher risk and a higher cost. When you lend to a company, you have to do a risk analysis, monitor it, etc., activities that increase the costs for the bank”.

However, the tax expert declared himself dissatisfied with the fact that the tax package proposed by the Bologna government does not include an increase in the taxation of gains from stock market transactions.

"I spoke with brokers about the fact that the tax on these transactions was reduced to 1% and they told me that the reduction of this tax did not lead to an increase in investments. I think that a 10% tax on gains from stock market transactions should be returned. Maybe it will be in the second fiscal package, at the end of July, but I think it is not ok because all the changes to the Tax Code must be made only once. We are tired of hundreds of changes. You cannot increase VAT and leave a 1% tax on stock market transactions for now, because you are destroying all credibility. This percentage applies only to transactions on the BVB and for Romanian brokers. I do not know how we do not have an infringement on this because the free movement of capital in the European Union is affected”, concluded Gabriel Biriş.