TAXES ROLE IN INFLUENCING THE ECONOMICAL AND SOCIAL PROCESSES IN ROMANIA

Abstract: In contemporary world, public finance is one of the most important components of the social and economic framework of any nation. Public finance strongly influences the social reproduction process by an ever-increasing transfer of the purchasing power from individuals and legal persons to public funds. Taxes are methods of collecting public resources as well as instruments to assist decision-making bodies in the management of a country's economic and social development. So, public finance influences the pace of the economic growth, the amount of public and private consumption as well as the proportions of the gross capital created.

Key words: fiscal burden, fiscal pressure, fiscal policy, unique tax, fiscal relaxation

The state's allotting, distributive and even regulating role implies financial resources that the state mainly procures by obligatory withdrawal from natural and legal entities.

The central public administration fiscal revenues consist of:

Direct taxes (taxes on income, taxes on profit, taxes on assets);

Indirect taxes (value added tax, consumption taxes or excises, fiscal monopoles, customs duties);

Registration and stamp duties (legal duties, notary's fees, consular fees, administration duties);

Nevertheless, the public financial resources structure differs from country to country. While in the developed countries most of the public financial resources are determined by the direct taxes, in the countries in process of development - among them Romania as well - the main source is represented by indirect taxes, especially by the consumption taxes (VAT, excises).

The fiscal revenues, especially the taxes, have a complex, financial, economical and social role within the society.

The taxes financial role is expressed in the fact that they represent the main means of forming the state's income, representing approximately 90% of their total. The taxes economic role is concretized in the fact that, by their typology and dimension, as well as by the fiscal facilities and by their increased severity, the state can encourage or not the economical activity. The taxes social role is concretized in the possibility acquired by the state to redistribute the social product.

The taxes and duties value in the GDP (Gross Domestic Product) - synthetically denominated the fiscality ratio - is a macro economical indicator characterizing the "fiscal burden" average in a certain country . Paying taxes is, for the modern citizen, a natural thing to do. Still, setting the taxes level is a problem with major implications for the taxpayers as well as for the state authorities. At the social mental level, the fiscal policy is often considered not only a necessary evil but also a benefic thing, as long as the obligatory withdrawal level does not cross a certain supportability threshold. This perception has been consolidated by the pension funds and by the state medical insurances appearance.

The average taxation level is relevant not only for the taxpayers but also for the budget. For the taxpayer, a high taxation level represents an even greater "fiscal burden", a diminution of his incomes purchasing power. The high taxation level has a discouraging effect on the economic action, with effects on the imposition basis diminution, determining negative effects on the budget revenues.

From a budgetary point of view, the revenues insufficiency or their unsatisfactory increase determines an imposition level increasing tendency, by the taxation quotas increase for the current taxes, or by introducing new taxes. Generally, if fiscality becomes heavier, it involves the economical activity hindering, fact, which generates negative effects for the economy in general as well as for each taxpayer.

In order to determine a reasonable taxation level, the financial theory proposes different solutions. For example, the A. Laffer curve aims at establishing an optimal taxation level, by reaching a fiscal cashing maximum quota in conditions of supply/demand general balance.

The fiscal pressure can be interpreted in the following manners:

from the taxpayer's perspective

The fiscal pressure expresses the taxpayer's degree of submission to the bearing of the fiscal charge set by the law. Even the term of fiscal pressure is meant to suggest that it represents a burden, an obligation for the taxpayer. This is why the size of the fiscal pressure indicates the percentage from the revenue representing the taxable matter which will be withdrawn for the company's general needs. The increase of the fiscal pressure ratio indicates an increase of the relative withdrawal to the state budget, namely a relative deduction from the available income, while its reduction represents a bigger quota from the gained income at the individual's disposal. The modification of the marginal rate of substitution concerning the taxation or the fiscal pressure signifies, in case of an increase, a penalty (discouragement) for the income increase effort, and, in case of a diminution, a bonus (encouragement) of this income increase effort.

from the state's (as taxes collector) perspective

The fiscal pressure size indicates what part of the national income created by the economical agents is to be constituted as budgetary incomes for taxation. For the state, the fiscal pressure increase indicates a relaxation of the budget expenses financing mechanism (the budget deficit), while its diminution alerts on the tensioning of budget deficit covering. From the state's perspective, the significance connected to the economical policy, to the fiscal policy in particular, is also important. Thus, during the inflation periods, when the reduction of the current monetary mass is necessary, the state initiates an increase of the fiscal pressure, while during the recession period, when the demand should be stimulated, the state reduces the fiscal pressure, leaving several incomes at the consumers' disposal. Concerning the value of the pressure marginal rate of substitution, its increase will be the result of a restrictive policy (of discouraging the market), and its diminution will be the signal of a demand expansive policy.

from the economical theory and from the public finances theory perspective

Although the absolute size of the fiscal pressure ratio is suggestive enough, indicating the proportion in which the national revenue is distributed between the private goods consumption and the public goods consumption, the analysis of this ratio dynamics is much more relevant. Moreover, another interesting aspect is the analysis of the way in which the two factors involved in defining the fiscal pressure concept - the tax size, connected to the size and structure of the individual taxation rates, on the one hand, and the taxable matter size, on the other hand - contribute to the fiscal pressure ratio variation. Thus, if an increase of the fiscal pressure ratio is noted while the taxable matter was maintained at the prior level, this means that a structure modification of the individual taxation ratios occurred (for example, on incomes installments or on income categories), fact that discourages the economical activity. If, on the contrary, a diminution or a keeping up of the fiscal pressure ratio is noted while the taxable matter volume increases, then the taxation rates structure is stimulating for the economical agents.

Concerning the fiscal pressure effects there are two categories of fiscal pressure effects: economical effects and social effects. The two categories of effects condition each other in forming and modifying the economical agents' behavior under fiscal pressure impact.

The economical effects appear at the aggregate demand modification level, at the society level, as well as at the individual level. At the aggregate level, the fiscal pressure increase leads to the global demand reduction by taking over a greater part of the nominal income at the state's disposal. The diminution of aggregate demand for the private consumption is, to a certain extent, compensated by the public expenses increase, namely by the public goods consumption increase. On the contrary, the fiscal pressure decrease involves the increase of the nominal income quota left at the economic agents' disposal, fact that increases the private goods demand. These effects are taken into account at the fiscal policy level as follows: for the economical revival the fiscal pressure will be reduced, and for stopping the inflationist phenomena the fiscal pressure will be increased.

We must also take into consideration the fact that operating the fiscal pressure from the perspective of the budget deficit financing necessities has some restrictions described by the Laffer curve, namely: there is an optimum degree of the fiscal pressure where the budget revenues are maximal. The fiscal pressure increase over this threshold has as an effect not the budget revenues increase, but their diminution, due to the discouragement of work and of businesses that are additionally penalized by the increased value of the obtained revenues withdrawals to the budget.

The economical effects manifest themselves not only at a global level, but at the aggregate demand structure level as well. Thus, according also to the taxation type, bigger incomes are generally taxed more than the smaller ones, while the economic agents having small incomes receive more from the budget resources than the economic agents with big incomes, fact that has as an effect the consumption, accumulation and investments behaviors modification at the society's level.

The social effects manifest themselves under the form of diminution of the purchasing power at the real income level (therefore by lowering the nominal income, not by increasing prices). Still, this effect is contradictory, for people with small incomes are compensated by the social safety policy guaranteed by the state budget.

The fiscal pressure has a direct effect upon labor as well. The variation of the tax on wage, which is a direct tax, since the taxpayer coincides with the person bearing this financial charge, has repercussions on labor. The tax increase immediate effect on the employees is the reduction of the available income. In case the wage taxation is a homogenous proportional imposition (namely it is not deducted on income installments), the taxation increase will reduce the employees' nominal income proportionally with their gross income. This discourages labor, because, the bigger the obtained gross wage, the bigger the tax paid towards the state. A more profound analysis is required concerning the taxation marginal rate of substitution. The taxation marginal rate of substitution indicates the number of units the tax increases with, when the income increases with one unit. Correlatively, we can determine a marginal rate of substitution for the available income.

The economic agents labor behavior as compared to the fiscal pressure variation on the wages will be the following: as long as the marginal rate of substitution for the available income is positive, the labor will not be discouraged by the fiscal pressure variation, this discouragement starting to act from the moment the marginal rate of substitution for the available income becomes negative. It is to be noted that in the case of homogenous proportional taxation (without the differentiation of the tax ratio on income installments), the discouragement of the labor extension behavior will appear only for the 100% wage taxation.

Nevertheless, in practice, employees consider that only a certain minimal value of the marginal rate of substitution for the available income "deserves" the effort to increase the quantity of worked provided in the economical activity. We can call this value a threshold of labor fiscal discouragement. The concrete size of the labor fiscal discouragement threshold value depends on several factors: the opportunity cost of work time increase, the bank interest that could be obtained by depositing the available income surplus at the bank, etc.

The fiscal pressure also acts on the purchasing power through the variation of the economic agents available income: it increases the income when it diminishes and it decreases the income when it increases. As the available income is the revenue that manifests itself on the market under the form of demand, it comes out that the fiscal pressure variation influences the economic agents purchasing power. The purchasing power grows when the fiscal pressure diminishes and the available income increases for the natural and legal entities .

The imposition quota, determining the manner of taxes dimensioning, has an important role in complying with the principles of fiscal equity. The imposition in progressive quotas, having as a characteristic feature the fact that the tax quota level increases at the same time as the taxable matter increases, is considered to be the taxation system that complies with the fiscal equity requirements to the highest extent.

If starting with the first half of the 19^th century, most of the world states adopted a progressive or gradual taxes system, at present we can notice that several governments opt for the unique tax system. Thus, the unique tax on income was introduced by Estonia in 1991, followed by Latvia (1994), Lithuania (1994), Russia (2001), Serbia (2003), Ukraine (2003), Slovakia (2003), Georgia (2004) and Romania (2005).

At present, other European states such as Germany, Italy, Austria, Finland, Denmark and Greece decided to introduce tax deductions under different forms in order to stimulate investments and expenses (consumption) and thus to determine economical increase.

The Maximal Tax Level on Natural and Legal Entities' Incomes in the European

Union Countries and in Other Candidate States

Chart no. 1

	Tax on Natural Entities' Incomes (%)		Tax on Legal Entities' Incomes (%)
Austria
Belgium
Bulgaria
Croatia		Document online: Metode financiare de evaluare a proiectelor de investitii Referat: Somajul
Czech Republic
Cyprus
Denmark
Estonia				0 on the reinvested profit
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxemburg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
Turkey
Great Britain

(according to Heritage Foundation and to national reports)

Although the "unique tax" is not considered to be a panacea for all the economical problems, more and more countries - among them the new member states - introduced or are in the process of elaborating new universal taxation regimes. Most of these countries confront themselves with considerable budget deficits and some of them confront with the need to align the economic statute to the Euro Area requirements. The unique tax should:

contribute to the bureaucracy elimination;

counterbalance taxes avoidance and evasion;

offer stimulants for working, economizing and investing;

generate bigger budget incomes, so on so.

At the same time, though, a fixed taxes system assumes the elimination of all forms of taxes exemptions and facilities, favoring the rich to the detriment of the poor.

An essential conclusion cited by some researchers is that the efficiency and the success of the unique taxation quota regime depend on the level of this unique quota: the lower it gets, the more it tends to become more efficient. Experts also signalize the fact that, besides the tax system or the type of support granted to the new entrepreneurs, one country's competitiveness is determined by other factors as well. If it is true, generally, that in an economy the taxes reduced level lets more money to circulate and to be invested and that the fixed taxes grow citizens' will to pay them, low taxes can also be concretized in lower budget incomes, big budget deficits and budget expenses uncovering.

Legally concretized by the Government Order no. 138/December 30, 2004 for the modification and supplement of Law no. 571/2003 concerning the Fiscal Code, the fiscal reform in Romania was initially presented as the fiscal relaxation necessary to private entrepreneurs support, to foreign investments attracting and to free initiative stimulating, fact that should lead to the Romanian market economy consolidation and development, one of the main requirements imposed to Romania in the European Union adhesion process. For this purpose a series of actions have been taken into account, out of which the most important are the following:

The reduction of the profit taxation quota, from 25% to 16%, performed at the beginning of 2005 and which had as a result an increase of 4,8% of the returns from the tax on income, on profit and on capital gains from the legal entities to the state budget, during 2005, as compared to the same period last year. By legal modifications, the taxation basis extended by means of: elimination of the choice possibility for incomes taxation at the rates due date in the case of sale contracts with payment by installments and their imposition at the invoicing date; renunciation to the possibility of amortization expenses deductions representing 20% of the entry value of the acquisitions of amortizable fixed means or of amortizable invention patents, in the conditions in which the normal use durations diminished with 20% on average.

The global taxation system for the incomes obtained by natural persons, who assumed the use of an imposition standard with progressive quotas comprised between 18% and 40%, was replaced with the system based on the percentage quota of 16%, applied for most of the income categories. The basic deductions and the additional deductions were maintained so that the persons obtaining small incomes not to register decreases of the available real income, but some economical deductions, such as the following, were eliminated: the expenses for the dwelling rehabilitation, the insurance premiums for the dwelling, the contributions to the optional occupational pensions schedules, the private health insurance premiums and the syndicate contribution paid according to the legislation in the matter. By applying the unique quota the substantial fiscal administration costs reduction was also provided. In order to avoid some possible incomes major lost to the state budget, a series of compensatory measures was also taken, such as: in case of taxing the incomes from investments obtained by the natural persons taxpayers, the increase of the tax quota for the incomes under the form of interests and of the returns from the bonds transfer (according to the possession period), as well as from the currency sale-purchase fixed term operations according to a contract and any other similar operations, prior imposed with a quota of 1% and their alignment with the tax quota of 10% for the incomes under the form of dividends was also taken into consideration. The tax on small enterprises returns was modified at the beginning of the year, the quota of 1.5% increasing to 3%. In the case of dividends, the tax quota increased from 5% to 10%, and for the other categories of investments the tax quotas existing in 2004 maintained. Concerning the taxation of the incomes obtained from Romania by the nonresident natural and legal persons, the tax quota for the bank interests obtained from Romania by nonresident persons increased from 5% to 10%, and the tax quotas concerning the nonresident returns, other than the ones obtained from gambling, were aligned to the unique quota of 16%.

The increase of the consumption taxes value, taxes that participated in the budget incomes forming in a proportion of 62.4% as compared to 56.4% in 2004. Out of these, the most important contribution, of 35.6%, is held by the VAT, followed by excises (which maintained their value constant, 24.8%, within the total of the state budget revenues, in 2005 as well as in 2004). The incomes from the tax on goods and services recorded a nominal increase of 25.7% in 2005 as compared to the prior year. Up to the moment of the Romanian state adhesion to the European Union, the carrying out of the communitarian legislation total transposition in the excises field will be supervised in parallel with the current legislation perfecting, according to the concrete terms of the Romanian economy, taking into account the following measures:

The excises increase for the main excisable products, respectively: alcohol, alcoholic drinks, tobacco products and energetic products;

The exemptions application scope review for the ethylic alcohol in the sense of eliminating the exemptions which are not mentioned in European norms;

The exemptions application scope review in the field of energetic products, respectively: gasoline, Diesel oil, GPL oil, electricity, natural gas.

Concerning the VAT, in 2005 was completed and harmonized the legal framework, by elaborating an ordinance project which was submitted to the Government. In this sense, the completion and the harmonizing of the legal framework concerning the VAT aimed at:

• Including in the national legislation the provisions concerning the intracommunitarian deliveries, applicable at the date of adhesion to the European Union.
• Eliminating the VAT exemption for sale licenses of movies or programs, broadcasting rights, subscriptions to the international news agencies and other similar broadcasting rights, for radio and television activities, etc.

Fortune and luxury consumption taxation, as well as the imposition of goods endangering man's and environment health, will bear excises increases. The excises raise will be performed according to calendars of excises gradual increase up to obtaining the levels provided by the European norms.

Indirect taxes represent the main source of income for the state budget. For a certain period of time the current VAT quota, which is 19%, will be maintained. The positive effects of fiscal relaxation for the incomes, will allow, in perspective, the VAT reduction up to the 16% level, due to the private consumption increase.

Without reforming the manner in which the social contributions are calculated it will be very difficult for the fiscal reform effect to produce short-term results. Their level, still very high, makes that the real wages statement be often avoided. The social insurances contributions will gradually diminish up to 39.5% in 2008, according to the taxpayers' economic behavior.

The above mentioned fiscal relaxation measures must be accompanied by a strategy which takes into account the fiscal administration capacity increase, by:

eliminating the clientele practices of exemption or of rescheduling the debts to the budget;

the penal punishment for tax evasion;

the administrative capacity increase for the taxes and duties collecting institutions, etc.

The critics of the incomes and profits unique tax quota introduction considered that it was a reckless measure, which was not founded on an impact analysis and which puts in danger the budget balance. It shall be accompanied by increases of other taxes and duties, by the introduction of new taxes, by increases of utilities prices and by reductions of the budget expenses. In order to cover the budget holes created by the fiscal relaxation, the Ministry of Finances, following the negotiations with the International Monetary Fund, had to propose unpopular fiscal measures: the doubling of the tax on small enterprises turnover, the blocking of the social insurances contributions reduction, the deferring of the budget wages increase and of a stage of pensions recalculation, the doubling of the tax on dividends for the natural persons, the 10 times increase of the taxation of bank interests and of the returns on the capital market, the more drastic taxation of real estate transactions and rents profits, etc.

The fiscal reform promoted at the beginning of 2005 had as main coordinates the fiscality general reduction, the fiscal system simplification and the fiscality rate increase outrunning by the taxation basis increase and the efficient use of the fiscal levers in order to improve the taxpayers economical behavior.

The accomplishments so far stress the fiscal relaxation reform viability, on the one hand, by the fact that the budget incomes were not reduced, and on the other hand, by the fact that a series of effects concerning the economical growth and the secret economy reduction can be noticed.

One of the most important aspects aimed at by the fiscal reform was represented by the transformation of the taxes and duties on goods and services into the main income source for the state budget. The reaching of this objective is also supported by the increased value that these taxes acquired, especially the value added tax, in forming the state budget returns. Thus, the taxes on income, profit and capital gains obtained from the legal and natural entities (tax on profit, tax on income, other taxes) reached in 2004 a percentage of 31.6% of the total state budget incomes, while, during the same period, but in 2005, this value lowered to 25.5%, in favor of the taxes on goods and services, which participated in the budget income forming in a proportion of 62.4% (as compared to 56.4% in the same period in 2004). Out of these, the most important contribution is held by the value added tax, with a percentage of 35.6% (27.9% during the period January-December 2004), followed closely by the excises (which maintained a constant value of 24.8% within the total state budget income during the two reference periods).

The reduction of the taxation quotas stimulated the economic activity, but the secret economy diminution as well. Thus, the fiscality reduction has also a social component because it stimulates labor, contributing to the revealing of a part of the "grey" economy and, consequently, it encourages the obtaining of incomes from several workplaces. In this sense, we can note an increase of the employees' number with approximately 103 thousands persons in December 2005, fact that represents an increase with 2.3%, as compared to the same month the prior year.

In the first months of 2006 comparatively with the period December 2005, the number of employers increased by 64 000, with mean a rice by 1.4%[3]. In keeping with the results of budget execution for the 2005, the budget deficit was situated at the end of the year below the level program (GDP: 0.8%, as compared to GDP: 1%), whit mean the holding of the austerity in governmental investment policy. In both parts of the pay balance recorded a relative decline as compared similar period of the last year. The share in GDP of the budget incomes and expenses subtracted with approximately to 1%. So that, the budget incomes felt the impact of the unique tax introduction. That was materialized in reduction to 2% of the relative embarrassment at the level of the collection of income taxes. The decline of this incomes partial was counterbalanced by the rise of the indirect taxation (GDP: 0.3%) as a result of rise aggregate demand for the private consumption. So, the taxes represent important economical-financial levers for the Romanian state. Romania is a state with raised fiscality from market labour. Approximately 60% of the staff costs arrive at the public budget about the wage tax and the social security tax. In Hungary, this percentage doesn't exceed 50%, in Czech Republic and Poland it is a round by 40%, in countries with tradition in social security (Denmark and Sweden) it is a round by 50% and in USA it is approximately 30%[4]. These percentages express the tax burden of the companies for keeping one appointment. In the countries with a clear social policy, the income taxation is higher, but it is find again in the quality of the social and medical welfare. In Romania, the social controversies by the tax burden topic are generated by the report between the income taxation and the utilization of the public finances. The taxes are raised and the quality of the public utilization is enough low. The state explains the raised taxes by the economical and demographical arguments. The lock of demo economical balance is determined by the great number of the pensioners (approximately 6 million) as compared to the number of employers (approximately 4 million). Not even the Romanian economy is quite dynamics to obtain a big part of budget incomes in economical movement taxation. In addition, the Romanian state has serious problems to collect the budget incomes. So that, the wage tax is collected in 100%, but the arrears at VAT, excise and customs duties are very raised.

The fiscal policy relaxation promoted by the current government by introducing the unique taxation quota was the amplest during the latest years, constituting an important supplementary stimulus for the demand. Considering the aggregate demand increase, pursuing the inflation level reduction, the Romanian National Bank Administration Board decided at the end of 2005 to stop the implicit relaxation process for the rate of interest policy. Although it maintained the representative rates of interest at within the prior levels limits (7.5%, the monetary policy rate of interest, 1% and 14%, the rates of interests attached to the deposit, respectively credit facilities), the central bank reset on an ascending trajectory the average efficiency of banks placements to the Romanian National Bank, progressively increasing the sterilized liquidity volume by means of the market operations, to the detriment of the monetary absorption reached by the deposit facility. The major reason for the decisions of changing the attitude of the interest rate policy and of subsequent continuation to reinforce the monetary policy, was constituted by the outlining of an aggravation tendency, at least on a short term, for the macro economical lacks of balance and a tendency of accumulation of the demand inflationist pressures; in this context, the consumption increase rhythm - the main demand component - was appreciated by the Romanian National Bank Administration Board as becoming unsustainable from the disinflation continuity guaranteeing objective perspective.

The perspectives of the Romanian state adhesion to European Union stimulated the economical reforms within our country. Under these reforms effect, and due to the massive investments from the latest years, Romania registers at present one of the highest rates of economical development in Europe. Nevertheless, Romania will need several decades in order to reach the incomes level recorded in the European Union member states, even in the conditions of an important economical growth. The macro economical lacks of balance resulting from the transition process will not be corrected on their own in time, so that the sustained economical development will depend on the success that government will obtain in handling the economical-financial levers, among them the taxes and duties, in order to guarantee a real and nominal convergence without difficulties and to minimize the inevitable risks associated to our country's adhesion to the European Union.

BIBLIOGRAPHY:

1. Manolescu, Gh., Budget. Economical and Financial Approach, The Economical Publishing House, Bucharest, 1997
2. Stroe, R., Armeanu, D., Finances, ASE Publishing House, Bucharest, 2004
3. Vacarel, I. and collaborators, Public Finances, The Didactical and Pedagogical Publishing House, Bucharest, 2004
4. *** The Romanian National Bank Annual Report, 2005
5. *** The Governing Program 2004 - 2008, The Press Office of the D.A. PNL-PD Alliance, October 15, 2004
6. *** The Romanian Government: Synthesis-Report on the Accomplishment of the Government Program Provisions in 2005 and in the first trimester of 2006, May 15, 2006.