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The Ministry of Finance is readying a new tax on employers

October 23, 2017

The Public Finance minister said Wednesday evening on a TV show that all employers would have to pay a tax of 2% of their wage bill starting January 2018. He argued that the tax is required by a European directive that all EU member states must implement.

On Thursday, the minister qualified his previous statement saying that this was not a new tax but an existing social contribution that would be updated. The money will go to the state budget and should cover the state’s expenses with unemployment benefits, medical leave compensation, and labour accident compensation. However, only 10% of the money raised through this tax will go to the employee support fund and 90% will be used for other purposes, according to minister Ionut Misa.

 

The largest business association representing small and medium-sized enterprises – CNIPMMR – announced that it opposed the tax. According to CNIPMMR, the new tax doesn’t serve a clear purpose and will negatively impact the local business environment.

According to economic analysts, the Ministry of Finance is going to change the current rules because it can’t spend the money as it would like to. Currently, employers pay a tax of 0.25% of their wage bill to cover wage claims in case of insolvency. This Insolvency Fund collected 316 million lei (70 million euros) in 2016. The National Labor Agency had expenditures of just 29.4 million lei (6.5 million euros), less than 10% of the total cash available. The Insolvency Fund ran a surplus over the last three years, but the Gov’t is unable to spend the money as it wants to because of its narrowly-defined purpose. 

 

The Court of Accounts recommended last year amending the law in order to allow the Gov’t to use the money surplus to cover, for example, a possible deficit of unemployment insurance.

According to analysts, raising the tax from 0.25% to 2% would result in the Gov’t collecting additionally at least 2.5 billion lei (over 500 million euros).

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