Romania: Taxation, fiscal issues and ways of inducing employment in European countries
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Romania: Taxation, fiscal issues and ways of inducing employment in European countries

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Claudia Sofianu

After five years of economic turmoil and the return of recession in 2012, unemployment is hitting new peaks not seen for almost 20 years. Household income has declined and the risk of poverty is on the rise, especially in member states in southern and eastern Europe, according to the 2012 edition of the report issued by the European Commission on Employment and social developments in Europe. As part of the renewed Lisbon Strategy for growth and jobs, the Commission proposes an initiative aiming to improve workers' qualifications in accordance with the needs of European employers. It is based on a prospective analysis of labour market trends up to 2020.

As such, it seems there is still a great potential for creating jobs in Europe in the medium and long term, particularly replacement jobs because of the ageing population. Skills and qualification requirements will increase for all types and levels of occupation. Employers are looking in particular for competencies such as communication or analytical and problem-solving skills. The level of qualifications of the European workforce should meet the new needs of the labour market. This can be achieved by introducing active policies and by improving the effectiveness of education and training systems.

In addition, country-specific recommendations (including fiscal measures) have been issued by the Commission for the member states with the view of taking action for stability, growth and job creation during 2012-2013.

However, at national level, the amendments brought to tax and social security legislation for 2013 represent the culmination of several public spending cuts during 2012, as a reaction to both the economic and euro crisis. As such, most of the measures taken (as seen in countries like the Czech Republic, Slovakia, France, and the Netherlands) are aimed at reducing the national public budget deficit and will potentially increase employer costs, rather than representing fiscal incentives for increasing employment.

With regards to Romania, most of the amendments brought to fiscal legislation in January 2013 envisage the increase of the computation base for employment taxes (correlated with limitation of some tax free benefits). In addition, after five years since Romania joined the EU, the procedure for registering foreign employers has finally been issued with the view of paying social charges for their employees assigned to Romania in case no certificates of coverage can be obtained for them.

Considering all the above, it clearly appears that to meet the recommendations of the Commission, EU member states still have to set out ways to encourage hiring by reducing taxes on labour and/or supporting business start-ups more, instead of concentrating on reducing the public deficit through increasing employment costs.

Claudia Sofianu

Ernst & Young

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