Bucharest sends mixed messages over "greed tax"

Bucharest sends mixed messages over
By Iulian Ernst in Bucharest March 5, 2019

Romania’s Finance Minister Eugen Teodorovici has reportedly sent a letter to the rating agency S&P, saying that the government will replace the so-called “greed tax” enacted through emergency decree (OUG) 114/2018 with a flat tax on certain banking assets, Economica.net reported, publishing the leaked letter. 

However, Prime Minister Viorica Dancila delivered a speech in parliament  on March 4 in defence of the decree, arguing that the “billions of euros” the banks and companies are supposed to contribute to the budget will be spent on education and health care.

This would not be the first time that Dancila’s government has failed to deliver on its promises made in front of the country’s foreign partners. Earlier this year, it enforced amendments to justice laws by emergency decree OUG 7/2019, in the same day that Dancila was promising EU officials to no longer take steps without consultations with all stakeholders. It is an unusual pattern, criticised by business organisations in the country, that severely diminishes the credibility of the incumbent ruling coalition and even the country’s creditworthiness.

Quoted by Ziarul Financiar daily, Teodorovici confirmed that the “greed tax” would be amended, but added that the talks with local banks are still underway. The “greed tax”, as enacted under OUG 114, is a tax on financial assets, proportional to the interbank money market (ROBOR) for ROBOR rates above a certain threshold (2%).

This tax, among other actions by the government, made S&P consider revising Romania’s sovereign outlook to negative from neutral currently. The minister suggested in the letter that he was aware of the rating company's concerns. He also explained that the new tax would be levied on a yearly basis, will be fixed and will only target specific categories of assets (not specified in the letter). S&P has recently confirmed Romania's debt rating, but it has agreed, at the request of the government, to postpone the publication of the outlook to analyse Romania's appeal.

In her speech to the joint chambers of parliament, Dancila defended each provision of OUG 114. Speaking of the most controversial provision, the “greed tax” on banks' assets, Dancila argued that Romanians pay loan interest rates twice as high as others in Europe, implying that the tax on financial assets would result in better borrowing terms for local debtors.

However, when it came to concrete details, Dancila hinted that talks are being held with stakeholders about the major provisions of the decree, while stressing that no amendment is needed. Such provisions, like capping the energy prices, are in force in many European countries, the managers of private pension funds are not willing to leave the market, and the government is close to finding a formula to amend the “greed tax” levied on banks in such a way that everybody accepts it, she said.