Romanian economy surging while U.S. economy falls

This is a third country that has introduced a flat tax rate and has a growing economy. If you noticed so far Russia, Lithuania and Romania were all Communist/Socialist countries that have developed into capitalist, free market economies after the fall of Communism in the late 80’s early 90’s. So lets go ahead and take a look at Romania now.

With a GDP of around $264 billion and a GDP per capita of $12,285 estimated for 2008, Romania is an upper-middle income country economy and has been part of the European Union since January 1, 2007. After the Communist regime was overthrown in late 1989, the country experienced a decade of economic instability and decline, led in part by an obsolete industrial base and a lack of structural reform. From 2000 onwards, however, the Romanian economy was transformed into one of relative macroeconomic stability, characterized by high growth, low unemployment and declining inflation. In 2006, according to the Romanian Statistics Office, GDP growth in real terms was recorded at 7.7%, one of the highest rates in Europe. The growth dampened to 6.1% in 2007, and is expected to exceed 8% in 2008 because of a high production forcasted in agriculture, 30-50% higher then in 2007. The GDP grew by 8.2% in the first quarter of 2008. Unemployment in Romania was at 3.9% in September 2007 which is very low compared to other middle-sized or large European countries such as Poland, France, Germany and Spain. Foreign debt is also comparatively low, at 20.3% of GDP. Exports have increased substantially in the past few years, with a 25% year-on-year rise in exports in the first quarter of 2006. Romania’s main exports are clothing and textiles, industrial machinery, electrical and electronic equipment, metallurgic products, raw materials, cars, military equipment, software, pharmaceuticals, fine chemicals, and agricultural products. Trade is mostly centered on the member states of the European Union, with Germany and Italy being the country’s single largest trading partners.

After a series of privatizations and reforms in the late 1990s and early 2000s, government intervention in the Romanian economy is somewhat lower than in other European economies. In 2005, the government replaced Romania’s progressive tax system with a flat tax of 16% for both personal income and corporate profit, resulting in the country having the lowest fiscal burden in the European Union, a factor which has contributed to the growth of the private sector. The economy is predominantly based on services, which account for 55% of GDP, even though industry and agriculture also have significant contributions, making up 35% and 10% of GDP. Additionally, 32% of the Romanian population is employed in agriculture and primary production, one of the highest rates in Europe. Since 2000, Romania has attracted increasing amounts of foreign investment, becoming the single largest investment destination in Southeastern and Central Europe. Romania’s growth in foreign investment and foreign direct investment has totaled more than $115 billion since 1989. According to a 2006 World Bank report, Romania currently ranks 49th out of 175 economies in the ease of doing business, scoring higher than other countries in the region such as Hungary, Poland and the Czech Republic. The same study judged it to be the world’s second-fastest economic reformer after Georgia in 2006.

The United States actually has a bill in Senate for a simpler tax system. It is called the FairTax Act. Do you know what the FairTax is?

* Ensures Social Security and Medicare funding
* Enables workers to keep their entire paychecks
* Enables retirees to keep their entire pensions
* Refunds in advance the tax on purchases of basic necessities
* Allows American products to compete fairly
* Brings transparency and accountability to tax policy
* Closes all loopholes and brings fairness to taxation
* Abolishes the IRS

For more information visit www.fairtax.org.

For more information on Romania’s economy. Click here.

Check out this June 2, 2008 article from the Balkan Insight on Romania’s economy.

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