Romania’s leaders need vision and backbone to implement the necessary economic reform to keep Romania from becoming a failed state. Romania needs to embark on a program to finally shed all of its former communist vestiges and transition to a true free market economy.
It should be amply clear to any objective observer that a country that only has twenty-five per cent of its people working in the private sector and supporting the rest of the country can not succeed. The weight on the back of the private sector is getting greater and greater and will crush it. The current system is putrid. History has shown us that communist, socialist and other similar government controlled economic systems simply do not work.
The current budget gap is the last and biggest proof of how putrid the current system is. The gap is estimated by some to be as big as 30 billion euros by the end of the year - no one is even sure.
After almost 34 years from the revolution toppling the communist regime Romania still languishes. Why? Because the vestiges and mind sets of the former communism regime remains. Romania is abundant in minerals and natural resources - but many of the mines have been closed.
State ownership supports endemic corruption
Romania has some of the largest gas fields in the Black Sea and yet only the smallest of the those has started producing gas a year ago, fourteen years after their discovery; many of its forests are hauled off illegally by unlicensed criminals.
The government owns some 1200 companies that lose enormous sums of money every year, do not pay taxes, and hinder competition and the economy.
Romanians are leaving in droves, from a population of 24 million people some 20 years ago, there are only at best 18 million now and it is estimated there will be only 14 million in some 15 years.
The country has poorly maintained railroads with average speeds lower now than 35 years ago, some of the worst roads in Europe, crumbling schools and hospitals and inadequate healthcare.
Romania has and will continue to lose billions of Euros in European Union funds because it can not apply such funds or because it does not meet other good government thresholds.
Government ownership of businesses and entities has caused all of these problems in addition to sustaining endemic corruption.
The people of Romania deserve better after all of these years of suffering. There is no reason the Romanian standard of living should not be one of the highest in Europe.
It would be a mistake to hinder the private sector
It must be finally understood that the government, at all levels, works for the people and is accountable to the people, not the other way around. Public service should not be a way to riches - people should leave government with the satisfaction of having served, not with bulging bank accounts.
It does not have to be this way.
Prime Minister Ciolacu recognized the governmental corruption in the recent nursing home scandal and has taken positive steps to correct it. However, the institutional government corruption affecting the Romanian economy must be addressed immediately as well.
With a little common sense and applying some basic economic principles Romania can quickly become economically healthy and dynamic.
No one can reasonably dispute how well the Romanian private sector has worked. It has worked well and is keeping Romania afloat. The Romanian IT sector is a leader in Europe and the world. The various privately owned businesses, including the real estate sector, are immensely successful and their tax revenues support the entire country.
It would be an enormous mistake to impede the private sector. Why not do more of the things that work and less of the things that do not?
Higher taxes lead to lower revenues
Recently, the famed economist, Arthur Laffer, was interviewed and said again that the key to a prosperous economy was to "[l]ower tax rates, broaden the tax base, sound money, minimal regulations, free trade, spending restraint, and then get the hell out of the way and let the economy solve itself."
Laffer was one of the economic advisors to Presidents Reagan and Trump. The United States economy flourished and was a world leader under both the Reagan and Trump administrations - they followed Laffer’s common sense economic advice.
Laffer is also known for the Laffer curve which demonstrates that raising taxes actually results in lower revenues.
Now, the Romanian government proposes increasing taxes on virtually every sector of the economy and on individuals. This will result in negative economic consequences.
Higher taxes will keep out foreign investors
Taxing the IT sector, which is one of Romania’s bright spots, at greater rates will destroy it and make people and businesses move to other countries. Romania is competing with Western Europe for IT talent - it is hard enough to attract talent, given the inadequate transportation, infrastructure and other shortcomings. To tax the sector on par with Western Europe will destroy it.
Similarly, higher taxes on smaller businesses will severely impact their viability.
As far as larger businesses go, higher taxes may not immediately cause them to leave, but will surely keep new investors out. The larger businesses will leave when it will become more and mor difficult to retain skilled employees as they will have emigrated to other countries.
In short higher taxes and impositions is a race to the bottom.
Bankrupt companies at citizens' expense
The biggest vestige from communist days and the biggest problem in the Romanian economy are the 1200 or so government owned entities. With the exception of but a few of these companies the rest lose money, are subsidized by the government every year with billions of Ron, do not pay taxes and keep other privately owned companies in their field from entering the market and competing.
In essence the Romanian government is underwriting failing companies at the citizen’s expense. These failing companies have no benefit for Romania other than employing politically connected persons and friends and families of politicians.
It is an abhorrent concept to raise taxes on the hardworking people of Romania to keep these failing companies in place. Even the companies that show a profit would be more profitable and efficient under private management. Moreover, increasing the taxes and impositions on the private sector will only destroy private industry and create more economic problems.
The Italian model: the break with the socialist economy
The Italian Prime Minister, Giorgia Meloni, was recently criticized by a New York Times editorial for parting ways with Italy’s socialist economic past. She responded by saying that she does what she thinks "is right for [her] nation, for the interests of my nation, and I think that what is happening in Italy is the only thing that really can give an answer or not."
The Italian economy has answered - it has prospered under her leadership and is now the third biggest in Europe.
Liz Peek, a Fox News contributor, supports what the Prime Minister has done for the Italian economy: "If she can show the EU that lower taxes, less regulation and inspiring people to work can cause growth in your economy, can begin to solve some of the problems that are endemic in European countries, bully for her. They are going to oppose it just like the New York Times is opposing it. They hate capitalism. It interferes with their creeping socialism in Europe, where politicians and bureaucrats take more and more power. I say bully for her...”
Most importantly the Prime Minister Meloni emphasized that "Things are going well, [and] I think I see also in the Italian economy that people now believe that things can change, that things can get better, so they do more, and that's what, in my opinion, can make the difference."
This is exactly what needs to happen in Romania. Few, if any, Romanians think that things are going well. People are leaving the country. We need to bring the same enthusiasm to the people of Romania, give them hope that they can participate in making Romania a better and more prosperous country.