Romania to Dial Back Tax Plans After Backlash Over Greed Levy

(Bloomberg) -- Romania plans to ease a disputed financial tax that crushed local stock markets, drew a rebuke from the central bank and threatened to dent the country’s creditworthiness.

The government will approve amendments to the so-called greed tax on banks, according to Prime Minister Viorica Dancila, who refused to give details. Earlier Monday, Finance Minister Eugen Teodorovici said state debt and some other loans would be exempt from the tax on banks’ assets. He sought to quash talk of a credit-rating cut by S&P Global Ratings.

The government has rattled companies, investors and the public with ad hoc taxes aimed at narrowing the budget deficit. Initial estimates indicate the package would raise 10 billion lei ($2.4 billion) in additional revenue in 2019, about 4 billion lei from the bank tax alone. But one problem is how the measures would affect banks’ holdings of government debt, which are among the highest in eastern Europe.

“We plan to have the bulk of the talks about potential changes to the fiscal plan this week,” Dancila told reporters Monday in Bucharest. “We’ll also have talks with the representatives of the pension funds and with the energy companies and the telecoms industry to come up with the best changes.”

The greed tax is among reasons S&P Global Ratings had moved to lower the outlook on Romania’s credit assessment to negative from stable. S&P said Friday that the government had appealed and that the matter should be resolved within two weeks. Romania’s debt is rated BBB-, S&P’s lowest investment grade.

“Romania could escape a downgrade of its S&P rating outlook if the amendments materialize like they were announced,” said Stephan Imre, a Vienna-based economist at Raiffeisen Bank International AG.

Teodorovici said the asset tax wouldn’t apply to state treasuries, loans to small- and medium-sized companies and loans for investment. Ruling-party leader Liviu Dragnea said he’s not against amendments to the fiscal plan as long as the principles behind it remain, namely that natural gas prices stay unchanged and banks finance the economy more actively.

The European Commission also weighed in on the tax controversy last week, criticizing the government’s measures. Th EU executive said Romania has made little progress on cracking down on corruption and continues to focus on short-term wage gains and household consumption instead of long-term infrastructure.

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