Burden of undone homework. Economic analysis by Info-Prim Neo

The proposals to modify the fiscal legislation put forward by the employers at the meeting of the national commission for collective talks and consultations seem a Xerox copy of the claims formulated by the National Employers Confederation of Moldova in March 2008 and much earlier. Eight months ago, the employers reacted categorically to the draft Medium-Term Expenditure Estimate for 2009-2011 worked out by the Ministry of Finance, saying that “the fiscal policy for the next three years proposed by the Government, without major amendments, will not favor the development of legal entrepreneurship.” Principally, the Confederation demands introducing amendments to the legislation on the labor market. It says that without amendments, the legislation will remain uncompetitive compared with the labor markets of other states, including the neighboring countries. The Confederation says that the two taxation systems used at present should be replaced by a common income tax for individuals of 10-12%. It demands that the yearly personal exemptions be increased to the minimum subsistence level and that the social insurance contributions paid by employers be reduced to 22% and by another 2% during the next five years. These proposals, some of which slightly amended, were discussed at the last meeting of the social partners that centered on the Confederation’s projects and on the state budget law for 2009. Why do the employers desperately insist on these changes? “The labor market experiences a shortage of highly qualified labor force, but the employer cannot offer a high salary as the contributions are too high and the pressure on the salary fund constitutes about 50%,” said company managers. In order to pay a decent salary of 500 euros, they say, the employers should pay taxes that exceed this salary. Consequently, many companies are forced to resort to double-entry bookkeeping so as to avoid paying contributions into the social fund. “The present taxation system for individuals hinders salary rises as an effective fiscal burden increases in line with salaries,” the Confederation considers. The progressive taxation system for private individuals makes the administration of taxes more complicated and creates difficulties to those that do several jobs simultaneously. A common tax will simplify the fiscal administration, will stimulate the legalization of incomes and will lead to larger collections to the budget. These issues were addressed on the day when, in the middle of 2007, there was presented the so-called fiscal liberalization (fiscal amnesty, legalization of capital and zero tax on reinvested profit). “Unfortunately, even if the Confederation presented well-founded arguments, most of its proposals were rejected,” the Employers Confederation says. Why doesn’t the Government want to accept employers’ proposals? The state institutions had discussed the introduction of a common tax for a long time, but this idea was dropped for financial or other reasons. In March 2008, it was announced that the Government approved a draft law for amending a number of legislative documents on salary payment, which provided for the implementation of a non-tariff pay system in the economic units working in the real sector of the economy, but this project did not have a continuation. The progressive taxation system for individuals with two tax rates (7% and 18%) will be valid during the next three years as well. At the same time, the social insurance contributions are planned to be decreased from 29% to 28% during the next two years and will remain by only one percentage point higher than the employers demand. The sum paid by the employers will be decreased from 24% to 21% during 2010-2011, while the tax paid by the employees will be increased from 5% to 7%. But the Government avoids putting such a burden on the employees. The yearly personal exemptions will be raised from 6,300 lei in 2008 to 9,000 lei in 2010. But the Confederation proposed increasing the exemptions to the minimum subsistence level (1,315.3 lei in the first quarter of this year, according to the National Bureau of Statistics). The Government intends to increase the mandatory health insurance premium from 6% in 2008 to 7% in the next three years. The employers propose maintaining the premium to the 2008 level. The employers are dissatisfied with the fact that the Government does not take their proposals into account. This is mentioned in a communiqué issued by the Confederation after the meeting of the tripartite commission. The Ministry of Economy and Trade also released a communiqué, saying that the amendment proposals submitted by the National Employers Confederation will be examined. As the Government approved the draft Medium-Term Expenditure Estimate for 2009-2011 and the draft budget law for 2009, it is hard to believe that it will introduce amendments concerning the fiscal policy.