Thursday, April 23, 2009

The crisis increases poverty in Romania in 2009

The Government must take firm measures for the incomes of the Romanians not to slide abruptly, say the experts of the World Bank. "The Household wealth will be affected by a smaller demand for workforce as well as by the increase in the unemployment rate and the smaller amounts of money sent by the Romanians working abroad. The Government could take into account certain measures to counter the crisis shocks", shows the report of the global institution. According to it, in Romania, the absolute poverty could increase this year, as compared to 2008, by 1 or 2 points and could affect 11% -12% of the families. The worse part is that the people affected will live under the poverty line because the Romanian expenditure per capita for social protection is low and there are no premises for increasing it due to the budgetary constraints. The amounts for social protection rise, this year, to 11.4% of the GDP.

The elderly are very vulnerable to poverty because Romania does not have clear rules on indexing the pensions, the World Bank experts show. Many European countries have a clear scheme for indexing pensions according to the price increases. The World Bank analysts note that the significant increases of the pensions in 2007 and 2008 will produce a deficit in the pension system representing 2.3% of the GDP as from this year. In 2050, the deficit would reach 6% of the GDP. "This deficit, along with the possible negative effects of the international financial crisis could jeopardize the plans for further integration and convergence of income at EU levels", says the report. The fiscal pressures are generated by the relatively small retirement age, so that the World Bank experts suggest raising the retirement age of women and smoothing it with that of men. Another problem identified by the World Bank refers to the aging of the population, and this will hinder the fiscal situation of the pension system.

Let's increase the vice tax!
The vice tax, especially that applied to tobacco, may be further increased, the WB recommends. "It is still room for increasing the vice tax in Romania, and especially the one regarding the cigarettes. In Romania, the taxes represent about 53% of the retail price of cigarettes, compared with 60% in Bulgaria, 62% in Germany and 68% in France. Increasing the tobacco tax is good for health, for the budget as well as for the economy ", shows the report. However, the report notes nothing about the smuggling of cigarettes and how will it be adversely affected by the increased prices. Also, the World Bank experts are of the opinion that the health funds could merge to increase their efficiency, to reinforce the principle of solidarity and to improve the fund risk.

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