Bankrolling the old
A European Liberal party proposing to double pensions overnight? It wouldn’t happen in Germany. But Minister of Labour, Paul Pacuraru, tells Ana Maria Nitoi the nation can afford the 2.5 billion Euro windfall
There is a dilemma that faces a free market economy in the midst of a boom.
How can the state bring welfare to the most disenfranchised members of the new society, without upsetting the business environment which is underpinning its growth?
The state needs to strike a balance between a fair system which ensures that those who cannot contribute to the new economy, such as children and pensioners, can share the spoils of the improving quality of life.
But at any sign of public spending increases, pin-striped suits bang their fists on the boardroom table, sweating and cursing about the return of Communism, the death of the market and how foreign investment will jump on the first slow boat to China.
Such a thunder of capitalist angst was heard in Bucharest when Tariceanu’s new Government announced this Summer it would double the rate of pensions.
Not only was this move greeted with incredulity at how the country could afford the costs, it was also seen as bait to hook in the pensioner vote for the Prime Minister’s National Liberal Party (PNL) ahead of an election season.
One of the founders of the PNL, Paul Pacuraru, was the Minister drafted in to explain how this nation was going to splash its cash while balancing the books.
Around 1.3 million pensioners still receive less than 100 Euro per month from the state.
No Government since 1989 has succeeded in appeasing the elderly rank and file, who face increasing costs, while their welfare cheques remain static. Added to this is Romania’s social security system, which critics say is a ticking timebomb.
But boosting the pensions has long been the preserve of the left, namely the opposition party, the Social Democrats (PSD) – not by the right and free market-oriented PNL.
Starting this month, farmers’ pensions will double and, from January 2008, all pensions should increase by more than 40 per cent.
But President Basescu argued such a move lacks a firm financial base. Initially, he did not want to approve the law.
Pacuraru had to explain where the Government would find the extra 2.5 billion Euro needed until end of 2008.
Growth should fund the welfare state, argues the Minister. He tells The Diplomat the social security budget will increase because the number of people who pay taxes to the Government will enlarge, as will the amounts they are willing to pay.
“It is clear that the biggest problem we currently have is pensions,” he says. “That is why I believe that our efforts to increase the income of this category of people are necessary, considering that they have suffered all these years. They too have paid the costs of Romania’s transition to democracy and it was high time we did something for them.”
Partly due to the 16 per cent flat tax on incomes that the Government introduced at the beginning of 2005, more employers are starting to pay tax. Therefore, Pacuraru argues that the black market is not as rampant as it used to be.
Between 2000 and 2005, about 6,000 employers per year were discovered employing workers illegally. This decreased last year - when only around 900 such employers were unmasked.
“Construction, food industry, wood industry, agriculture, the small transporters or services such as car shops, security and protection firms and beauty salons are the areas where most illegal work can be found,” the Minister says.
But the country is facing a massive labour shortage. Over two million Romanians have left the nation to find a better place to work. There is little evidence yet that the prospect of Romania’s high growth economy and EU membership is seeing them return in massive numbers.
“In 2005, 59 per cent of the firms had employees who left their jobs, especially in western and north-eastern Romania, the regions where people chose to migrate to other countries the most,” Pacuraru adds.
Construction is facing a huge shortfall. But more worrying for a nation that may hope it has pretensions to a knowledge economy in the future, Pacuraru says that “a significant drop” has been registered in specialists with intellectual and scientific professions.