Effects of the monetary and fiscal policies

Adopted by Social Democratic party in

Romania

During their stint as the government of Romania between 29.01.2018 and 4.11.2019, the
infamous Social Democratic party (PSD) cabinet, rolled out multiple fiscal and monetary policies
that, for better or worse, changed the economic landscape of Romania, and in this project we
are going to go over a few of these policies, that were of significant impact.

For example, in 2018, the government instated a “greed tax” on the assets of banks. The name
implied that the tax was a measure taken by the government in order to protect the interests of
citizens, and not let banks take advantage of them. In defense of those allegations, the
government pointed out that the difference between the interest for credits and the interest for
deposits was at it’s highest in the last 4 years (6.8%).
This regulation forced banks to pay a tax if the ROBOR index (computed at every 3 and 6
months) crossed a certain threshold (1.5%), and the amount to be paid varied according to the
extent to which the ROBOR limit had been surpassed:
- If ROBOR is between 1.51% and 1.7% then the tax will be 0.2%
- If ROBOR is between 1.71% and 2.5% then the tax will be 0.4%
- If ROBOR is between 2.51% and 3% then the tax will be 0.6%
- And if the quarterly average exceeds 2% then the tax will be 0.9% and it will keep on
growing with 0.3% for every 0.5% that exceeds the index limit
This tax was to be computed yearly, but to be paid in 4 tranches, one every 3 months. The
quarterly rate would vary between 0.2% and 0.6% under normal circumstances. In the case of,
for example, the last 3 months of 2018, the tax rate was 0.3%. If applied quarterly, the tax would
add up to 1.2%. In a record year when it came to profits of the entire Romanian banking system,
like 2018, the average yield of assets was 1.76%. That meant the state would absorb 70% of
bank profits, which would have been unrealistic.
This policy also affected common people, as banks would have to reconfigure their strategy.
This change could lead to the disappearance of multiple banks, making it harder for citizens to
get loans, the interest on deposits could go down and the prices of loans could increase, and so
could the amount of requirements that need to be fulfilled in order to gain access to a loan. But
maybe the biggest consequence of this fiscal policy is the rushing of the recession. This implies
the depreciation of the RON, an overall drop in the real estate market and severe personnel
cuts.
Another major policy implemented by PSD was making so that all employees would receive
their raw salary and that all taxes would be payed by them, making so that the employees is
absolved from these payments. The tax was to be payed yearly, an issue which raised many
concerns regarding the ability of citizens earning minimum (and in some cases medium) income
to make such a payment, without major repercussions to their financial stability.
The minister of finances at the time, Viorel Stefan, declared that “since people whose taxable
income is below 2000 ron/month have a tax duty of 0, and that people whose income would be
considered average should have no problem paying there are no reasons for concern”. Also,
there were changes made so that the only taxes that had to be payed were those to CAS and
CASS, making the unemployment fund contribution disappear.
To conclude, I would like to talk a bit about the social impact of these measures that the PSD
cabinet adopted.
Even though, on paper, some of the policies implemented, such as the shifting of tax payment
responsibility on the employee, seem to be highly beneficial for the population, because raw
salaries increased and, on paper, the salaries were indeed bigger, many have argued that those
benefits are not real, because the taxes also increased, and after tax people got the same
amount of money they got before. These people argue that these policies, even though they
produced real changes, have only been implemented to make the population shift their attention
from the many wrong doings of the government when it came to other areas, especially justice.

Sources:

https://www.economica.net/taxa-lacomie-taxa-banci-2019-robor_162704.html

https://www.profit.ro/stiri/grafic-aplicarea-taxei-pe-active-trimestrial-ar-duce-la-stat-70-din-profitul-
net-al-bancilor-18753973

https://romania.europalibera.org/a/consiliul-fiscal-critic%C4%83-dur-bugetul-psd-deficitul-bugetar-ar-
putea-ajunge-la-3-5-%C3%AEn-2019/29815201.html

https://republica.ro/schimbari-pentru-salariati-de-la-1-ianuarie-2018-vor-incasa-salariul-brut-si-isi-vor-
plati-singuri-impozitele

https://republica.ro/ce-ascunde-transferul-contributiilor-sociale-de-la-angajator-la-angajat