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Romania ranks seventh among the 27 states of the European Economic Area (EEA) by the amount of social security contributions, after the cap on the calculation basis was removed as of February 1, 2017, shows a survey conducted by Deloitte Romania.
According to Deloitte analysts, beginning 2018, Romania might return to the middle of the ranking on spot 11, considering the cut in the aggregate contribution rate from 39.25 pct to 35 pct set forth in the governing program.
Despite this, experts warn the measure to reduce the percentage rate is accompanied by the 22.7 pct increase in the gross wage so as to keep the net wage the same. If the comparative analysis of social security costs took the net wage as reference and not the artificially increased gross payroll, Romania would even land on the podium, among the countries with the highest social security costs.
"Romania was in the second half of the ranking in January 2017, when Deloitte's Comparative Survey on the Social Security Benefits was published. Considering that the cap on the contributions' calculation basis was removed beginning February 1, 2017, we updated the survey and found that Romania advanced 11 positions," said Raluca Bontas, Deloitte Romania partner.
According to the governing program, in 2018 Romania is supposed to scrap 4 of the 6 existing security contributions and fully transfer them to the employee and reduce the aggregate rate thereof from 39.25 pct to 35 pct. The income tax would drop from 16 pct to 10 pct (0 pct for a gross income below 2,000 lei). Under these circumstances the labor cost will be 70 pct as to currently 75 pct, that is for each 100 lei collected by the employee the state will charge 70 lei instead of 75 lei.
According to Deloitte, the comparison with neighbouring Bulgaria, which has an economy similar to Romania's, is relevant as far as labour cost is concerned.
"Taking the same net income as reference, the total cost for the average wage is by 15.55 pct higher in Romania than in Bulgaria. For a wage of 4,000 euro this cost gets by 44.16 pct higher (the equivalent of approximately 7 gross minimum wages). In other words, for a managerial position an investor can use the savings from the cost difference from social security to employ seven people in Bulgaria. As the other indicators relevant to investors are similar, the cost of the contributions could be key to the investors' decision," concluded Raluca Bontas.
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