Monday, May 10, 2010

Politics week - Part 1: Romania

It's going to be politics week on Csikszereda Musings (taking over from the last few weeks during which there were clearly a series of "no activity at all weeks" on this blog).

I'll get to the UK election later this week, but I'll start with Romania. Now Romania's economy is pretty bollocksed (as I believe the technical macroeconomic term has it), and some months before Greece made headlines and made it fashionable the country took a large IMF loan in order to try and bail out the system.

As ever one of the conditions from the aforementioned IMF was that the country had to reduce its budget deficit. So last week, the plan was announced, and quite frankly it's the shittest most ridiculous plan in the history of rubbish plans. Basically it is that state sector employees take a 25% pay cut and pensions and other welfare are cut by 15%.

Let's start with public sector pay cuts. Public employees in Romania are not, frankly, overpaid as it is. Nurses, for example, earn an absolute pittance. Every hospital experience I've had here (either as patient or visitor) I've been absolutely blown away by the commitment and dedication of the nursing staff despite them being paid pretty much the minimum wage. If they're taking home much more than €250 a month I'd be utterly shocked. Meanwhile they are working inside hospitals plastered with posters advertising nursing jobs in other European countries where they will earn 10 times as much. Teachers too, especially those at the early stage of their careers earn basically the square root of fuck all. I'm quite sure that this low pay culture is reflected in most other public service occupations. How shall we deal with debt crisis? Oh let's cut further the pay of those who already earn virtually nothing in the first place.

Pensioners are about the only group in society who make public sector employees look well off. Pensions are very low, and with inflation relatively high, I have no idea how most pensioners will be able to survive a 15% cut in their income. The vast majority of them are pretty much barely making ends meet on a month to month basis anyway. At least from the government's point of view pensioners can't strike, so perhaps that's the motivation.

So what should Romania do instead? If we assume that it must abide by the IMF's requirements (I'm not sure we should assume that, but let's just run with it), obviously money has to be found somewhere. Money either has to be cut from something or raised from somewhere. Cuts seem not what Romania needs right now, with the country's infrastructure in a complete mess, and stuff needing to be done in pretty much every area, and the aforementioned poverty-line existence of nurses, teachers, pensioners, etc etc. Obviously there are large stacks of cash that get siphoned off between being earmarked for public works or what have you and actually being spent, and this would be one area that could profitably be dealt with. Actually have a serious effort to deal with some of the worst corruption, but obviously politicians, as some of the primary beneficiaries of this money leak, are not so willing to go for that option.

The other blatantly obvious place to raise more money is in the taxation system. Romania is one of the few countries in Europe or the world to have a flat tax system. Not only is there a flat tax system but it's pegged at a very low 16%. There is a staggering amount of inequality in Romania, and a better more progressive tax system seems like it would not only raise money but actually make the country a fairer place in general. People earning up to €10,000 a year (a fortune in Romania to be honest) pay 16% as now. Over 10,000 and you start paying 30%, over 50,000 and you start paying 50%. It's not that difficult, you wouldn't punish people who can't afford it, and you'd raise money to start getting the deficit down (and in the grand scheme of this you are not suddenly making Romania less attractive to investors, since what I've just suggested is fairly close to what everyone else has). If you could combine this with a serious anti-corruption effort then suddenly things get better without forcing nurses to go overseas to work so they can eat and pay the gas bill, and without creating an underclass of pensioners.

But no, the government have spoken. Wankers. I have the feeling that this is now going to make the economy worse, since the public sector workers will now all go on strike (and with good reason) and thus, effectively increase the problems. Good work Domnul Basescu, you stupid stupid bastard.


Bucharest Life said...

You didn't even mention the second-hand fighters being bought from the US for billions.

Or the fact that the IMF money is not going directly to the budget: it all goes to the National Bank which keeps it as a reserve in order to prop up the leu when needed.

Bogdan said...

Actually, beyond the 16% tax, you (and your company) have to pay a myriad of other taxes: social security 29%, state health insurance 12.5%, unemployment 3% etc

For a person to get a 4000 lei wage, the company would pay in all an additional 3300 lei in taxes, so the tax rate is more like 45%.

Bogdan said...

hm... Actually, the more I look at Băsescu's plans, the more I see Thatcher's ideas.

They're going to privatize everything, from the district heating companies to rail transport.

They're going to close down *HALF* of the state-owned hospitals, chosen by the statistics, i.e. the least "efficient" hospitals.

They're trimming down all benefits, not just pensions and the maternity leave payments will be limited to 600 lei, to encourage mothers to go back to work as soon as possible. (many families, especially those in Bucharest/big cities, with mortgages can't afford living on such a sum).

He claims to trim down the farcical/absurd social programs, giving as example, the benefits given to the parents of babies for nappies.

Băsescu said he's generally against social security benefits (such as venitul minim garantat), as they "encourage laziness".

More flexible employment: i.e. so owners can fire people without a reason.

He's blaming in his speach the European Union as encouraging laziness ("nemunca") through the social state.

Anonymous said...

They should cut all those "businesses" with the state..politicians' companies go extremely rich only because they can do business with the state..It makes me sick!
Videanu, the minister of economy asked the oficialls in Bruxeles if he can access European fonds..could you believe that??? What a nerve he has!
Unfortunately, a mafiotic system runs Romania. So bad, these people don't deserve this.


Anonymous said...

We lived for nearly half a century under a system counter-selecting system that repressed initiative. Then followed another twenty years of more or less faking reform, yielding to progress only when pressured to. The bulk of the populace is bluntly put ignorant and easily manipulated (admittedly older EU countries have the same problem but by far not to the same extent).

With this kind of society any money taken as tax or anything touched by the state is bound to fail. So lets keep the flat tax rate, privatize as much as possible, set the right incentives, etc. When we will be smarter, more independent perhaps we can revert to a progressive tax system generally used by *developed* countries.


Andy H said...

Bogdan: Jesus, all of that? It's a nightmare. It sounds exactly like Thatcher to be honest. Let me guess: "an efficient hospital" is defined in terms of money not in terms of health/treatment/life saving etc. Am I close?

Friedman: There isn't a great deal left to privatise, frankly. The railways, and I dunno, the post office maybe. Utilities, telecom and banks all went some time ago. Take it from someone who experienced rail privatisation - it's an incredible mess and it made things a 100 times worse. CFR needs investment that's for sure, but privatisation of railways is a recipe for absolute disaster.

Bogdan said...

@Andy H: the criteria for closing down hospitals weren't mentioned, but I suspect it's costs thing: i.e. as many patients treated for the smallest costs.

also, the "rationalization" will affect schools, too, not just hospitals, which means that schools in small mountain villages will be closed down as well and children will have to go like 10-20 km to the school in the next village...

Anonymous said...

Roads, railways, mining companies etc. Utilitites are not privatized, or rather put they are in a perverted state. For example electrical grid is owned by the city and it is responsible for all extensions. However all maintenance and income from the actual use of the system goes to a "private" state company. If you want an extension tough luck. Concurrency is virtually non existent the country was split to regions ... this is the kind of reform that we need. Privatization does not just mean private ownership, it should be done such way that the self interest of the owner should serve the greater good of the society.