More on why lower taxes will save Romania

As I have said here, here, and in my presentation to the NBR yesterday I think the only way for Romania to grow is to reform itself. This reform involves lower taxes and a lower number of public employees. The idea is not new and a similar reforming process was implemented in the run up to EU admission. It is possible.

I understand the fear of higher deficits as a result of my proposal but this fear implies the continuation of the status quo. Of course that is not possible and this is not what I expect. Keeping the status quo is not an option with or without my proposal. My expectations are that in the next phase of economic growth only flexible and almost state free economies will make it.

My proposal of lower taxes comes in a package with lowering by 50 % the number of public workers by 2017.  I know this scares every politician out there. But restructuring or lowering the number of public employees does not necessarily mean laying off 50% of the people. What I have in mind is PRIVATISATION. Including privatisation of EXIM Bank and Savings Bank. This strategy not only will reduce the long-term expenditure of the Romanian government permanently, it will also bring revenues in the short-term.  It does not have to happen tomorrow, but instead of wasting time changing the management of those companies, Romanian Government should focus on privatising them.

I know that my proposal is not what policy makers want to hear. But is not a proposal to support the political class. It is a proposal to support the Romanian consumer and to spur economic growth. This should be the aim of our policies not maintaining a bloated government.


7 thoughts on “More on why lower taxes will save Romania

  1. Come one, whose gonna by these banks in the actual economic environment ? I wonder which banks shall be interested into a Romanian expansion (referring to foreign banks). On the other hand, even though shall be someone interested in such a deal, I wouldn’t image a that shall be paid a good (not even fair) price for them. So the income to the budget shall be negligible.

  2. Few years ago I would agree with you in a blink. Meantime, seeing the privatization of energy sector parts I ask myself and all of you: where is the benefit for me, the end-user, when I pay higher bills at electricity, gas, heat, etc…?
    What I would think now is that as long as people (including policy makers, businessmen, large public, etc, which are people, as well) will not be A LOT more responsible, is useless. I really think this whole mess we are living in now is a matter of mindset, not of “figures” (or pure economics).

    1. You are half right.Privatization is the first step. Second should have been price liberalization and competition. We should be allowed to buy energy from anywhere in Europe. IF that is not possible and you have natural monopoly the government should brake it up.
      Also, remember the lower prices you and I paid were subsidized. So, you might have not paid a high energy prices but you definitely paid the price in terrible health care, education, infrastructure etc. Romanian is not a rich country. It cannot afford to keep 25% of employed workers in the public sector and hope to grow over long term. It will never work.

  3. I do agree with you that privatisation should be taken in to account, but we also have to think that the easy privatisations have already taken place. The remaining companies are either not attractive (state regulated monopolies, having old infrastructure and requiring huge investments), or can have potential political impact on the economy. Just think what would happen if a Russian state-owned company would buy a Romanian gas distribution or energy company. From an economic point of view there should be no problems, but external political pressure from either the East of the West will follow.

    In the face of politics, economic logic is not likely to prevail.

  4. I know that the “reality” we all know is what you wrote.
    🙂 I might be alone on this but, to me, economics, money, the prices are conventions – unnatural creations that, for lack of a better solution/system, led to today world. So, as long as all the effort of brilliant minds is not for the better of all, I will continue to think that it is about how we think, not what we think. Especially in economy. 🙂
    No, I’m not a communist :).

    1. As I see that this topic raises some interest I will write a post using a macro model to show how this will work. Also, I will address in more detail the issue of privatization.

  5. Looking forward for the CFR and Posta Romana privatisations also.

    I’m sick of being treated like I owe them something each and every time i have to interact with them.

    Also, your presence at NBR, even though it was just for a presentation, is good news for me. The feeling that the things will be the same forever in this country was diminished a bit.

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