Transcript Critique of the National Reform Program of Romania

Balancing social and economic policy of
Europe during the first European
Semester
Romania – solutions for alleviating crisis
effects, fighting against poverty
and boost employment
Brussels
September, 2011
Petru Sorin DANDEA
Vice president
NTUC “Cartel Alfa”
Presentation Structure

Main important effects of the economic
crisis

Commission recommendations - IMF
stand by agreement

Measures implemented by government

Effects on poverty and employment

Possible solutions for combating poverty
and boost employment – trade union view
Main important effects of the economic
crisis
o
From a +7.8 increase of GDP in 2008 to -7.2
GDP in 2009
o
More than 300000 new unemployed from
the beginning of 2009 (unemployment rate
raised from 4.2 in 2008 to 7.5% in 2009
and remained steady up to the middle of
2011 )
o
State budget deficit forecast for the end of
2009 about -7.2%
Main important effects of the economic
crisis



Difficulties in the payment of wages and
pensions in the pubic sector
Arrears in payments of the government
debt to the private sector - more than
2 bln Euros
More than 29000 SMEs bankrupt from the
beginning of 2009.
IMF Stand by Agreement (EC recomandations)
• Stand-By Arrangement (SBA) for a
period of 24 months in the amount equivalent to SDR 11.443 billion
(€12.95 billion)
• In conjunction with support of €5 billion under the EU’s balance of
payment financing facility
• Other multilateral commitments of some €2 billion (WB branches)
IMF Stand by Agreement (EC recomandations)
• Strengthen fiscal policy further to reduce the government’s financing
needs and improve long-term fiscal sustainability, thus preparing
Romania for eventual entry into the euro zone (CBD 4.2 in 2009 and
6.1 in 2010);
• Maintain adequate capitalization of banks and liquidity in domestic
financial Markets;
• Bring inflation within the NBR’s target range and maintain it there;
• Secure adequate external financing and improve confidence.
IMF Stand by Agreement (EC recomandations)
The SB agreement – main components
Conditionalities
· Public employment and the compensation system: pay scale
harmonisation;elimination of bonuses; targeted reduction in wage bill..
The public sector wage bill is targeted to be reduced by 2% of GDP by 2015.
· Fiscal responsibility: independent fiscal council; binding medium‐term
budgetary framework including expenditure, deficit and debt rules.
· Pension reform: changes in pension indexation; increases in retirement age
and minimum contribution period; expansion of the contribution base.
· Tax administration reform: new legislation to improve tax collection,
which is poor by EU comparison.
· Reinforcing banking sector: measures for strengthen capitalization
rate and reducing risks faced by banks.
IMF Stand by Agreement (EC recomandations)
The SB agreement – main components
Measures implemented by government – 2009
(i) foregoing public sector wage increases (totaling 5 percent) scheduled
for 2009 or equivalent further cuts in employment;
(ii) reducing public employment, including by replacing only 1 of 7 departing
employees;
(iii) frozen pensions at the level of previous year
(iv) 15 days compulsory non paid holyday for all employees from public sector
(v) 20000 dismisalls in the public sector
IMF Stand by Agreement (EC recomandations)
The SB agreement – main components
Measures implemented by government – 2011
(i) continuing reducing public employment below 1.2 mln,
including by replacing only 1 of 7 departing
employees;
(ii) frozen pensions at the level of previous year and introduction of
compulsory contribution for health insurance by 5.5% for all pensioners
(iii) 20000 dismisalls in the public sector (SOE)
IMF Stand by Agreement
Measures implemented by government – 2010
(i) a 25 % cut in total wages, bonuses, and other compensation paid
to all public sector employees;
(ii) a 15 % cut in pensions and all social allowances
(replaced partialy by a 5% increse in VAT, after CC declared the measure
unconstitutional);
(iii) 75.000 colective dissmisals from public sector
(iv) cuts in transfers to local governments;
(v) further reductions in heating subsidies.
IMF Stand by Agreement
Dialogue with social partners
• Regular meetings with IMF, WB and EU representatives during the assessment
missions (9 meetings from April 2009 to June 2011)
• Two day seminar organized by IMF for representatives of TU organizations from
ECE (January 2010 - Vienna)
• One day seminar organized by IMF for Romanian TU representatives
(October 2010 - Bucharest)
Effects on poverty and employment
People at risk of poverty after social transfer
2007
2008
2009
2010
2011
Romania 24.8
23.4
22.4
26.2
27.0
EU 27
16.4
15.9
15.9
n.a.
2008
2009
2010
2011
Romania 36.5
32.9
32.2
36.1
36.3
EU 27
8.4
8.1
9.2
n.a.
16.7
Severely materially deprived people
2007
9.1
Effects on poverty and employment
Relative poverty rate in 2010 – 18.5%
Most affected by poverty population categories
%
50.00
47.00
45.00
40.80
40.00
35.00
30.00
30.00
25.90
25.00
20.90
%
20.00
15.00
10.00
5.00
0.00
Childrens
Youngs
Unemployed
Mono parental Familyes with 3 or
family members
more childrens
Effects on poverty and employment
Employment rate
2007
2008
2009
2010
2011
Romania 64.4
(20 – 64)
64.4
63.5
63.3
62.2
Romania 59.5
(15 – 64)
59.7
60.0
60.1
58.0
EU 27
70.4
69.1
68.6
n.a.
70.0
Unemployment rate
2007
2008
2009
2010
2011
Romania
4.4
4.2
6.9
7.0
7.3
(1q)
EU 27
9.5
9.8
10.0
9.6
10.0
(1q)
Possible solutions for
combating poverty and boost employment –
trade union view
• Combating fiscal evasion, corruption and informal labour market
• Amending fiscal regulation for making it more equitable and replacing
flat tax with progressive tax system
• Reinforce administrative capacity of the Managing Authorities responsible for
European Structural Funds in order to speed up the funds absorbtion (more than
Euro 27 bln still available up to 2013)
• Do not deregulate the labour market by introducing
hiden free hiring and firing procedure
• Do not decupled pensions from salaries by changing the pension indexation
mechanism
• Inteligent restructuring of human resources in the public sector, staring with
an realistic evaluation of the real needs of the public bodies in terms of human
resources
Possible solutions for
combating poverty and boost employment –
trade union view
National framework agreement on minimum wage
Year
2010
2011
2012
2013
2014
Average
monthly 1970
gross wage (ROL)
2150
2335
2530
2650
Minimum wage (ROL)
860
1030
1190
1325
40%
44%
47%
50%
670
Minimum
wage
against average wage 32%
Minimum wage progression
Total taxation including SSC as %GDP
Taxes and SSC
Other revenues
Compliances effect – SSC reduction and flat tax
SSC (% gross wage)
Total taxation (%GDP)
Labour Taxation
Thank you !