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Communication AmCham Press Releases AMCHAM ROMANIA: The Pensions’ Law Draft Must Ensure the Long-Term Sustainability of the Increases It Generates, without Creating Budgetary and Macroeconomic Imbalances

AMCHAM ROMANIA: The Pensions’ Law Draft Must Ensure the Long-Term Sustainability of the Increases It Generates, without Creating Budgetary and Macroeconomic Imbalances

by AmCham Romania October 17, 2018

In the context of the recent approval by the Romanian Government of the Pensions’ Law Draft, AmCham Romania expresses its concern regarding the significant increase of the social security expenses that such project levies on the general consolidated budget.

In the context of the recent approval by the Romanian Government of the Pensions’ Law Draft, AmCham Romania expresses its concern regarding the significant increase of the social security expenses that such project levies on the general consolidated budget.

We believe that is mandatory for the presentation and consultations around this draft legislation with a major budgetary impact, to include information about the financing sources of the related increases, in accordance with the provisions of Public Finances Law no. 500/2002 and Fiscal Responsibility Law no. 69/2010.

There is an obvious lack of economic sustainability of the increased expenses generated by this draft legislation, up to a level that poses high risks for budgetary imbalances beyond the limits set by Romania’s European commitments and beyond the financing capacity of the Romanian economy. With no clear financing sources identified, such measures are likely to be followed by hasty budgetary amendments, such as significant tax increases and/or massive cuts of expenses, most often of the investment allocations, critical for a healthy economic growth.

Moreover, by introducing presumably permanent increases of the expenses related to pensions and maintaining their financing from the social contributions of current employees and other type of contributors to the social contributions budget (the Pay-as-you-go system), the impact analysis for this legislative draft must consider not only the immediate impact, but also the long-term impact on the sustainability of the public pensions’ fund. This is critical given the demographic projections for Romania that indicate an accelerated ageing of the population and implicitly the rapid deterioration of the ratio between the number of employees (or, more generally put, the number of contributors to the social insurances budget) and the number of retirees.

In our view it is equally important that the initiators’ of this draft legislation will also consider the principle of inter-generational equity. Otherwise, the sole implementation of the pensions’ increase, without complementary measures to ensure the short, medium and long term sustainability, has the potential to increase the social tensions, to affect the social solidarity principle, which should be symmetrical, as well as to affect the country’s macroeconomic situation.

We hereby call for the Romanian Government, as an initiator of this legislative project to present a comprehensive and explicit analysis of its implications, and for the Parliament to prudently and responsibly examine its overall effects on the present and future generations, prior to passing the law.

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