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Romania's President Traian Basescu gestures at Cotroceni presidential palace ahead of the Summit of heads of state and goverment of the states participating in the South-East Europe Cooperation Process (SEECP) in Bucharest June 25, 2014. REUTERS/Bogdan Cristel(reuters_tickers)
BUCHAREST (Reuters) - Romania's President Traian Basescu rejected a planned social security tax cut on Wednesday, asking the government to unveil the measures that would cover a likely revenue shortfall.
The cut was approved by Prime Minister Victor Ponta's leftist government in June and endorsed by parliament last week, going against a recommendation from the IMF which leads a 4-billion euro aid deal for Romania.
"Risks are very big, so that's why I won't sign this into law until I have a very serious discussion with the government on how are they going to make up the shortfall," Basescu told reporters. "The cut is very good for companies but we shouldn't put the country's macro stability at risk."
The move was intended to boost economic growth but is expected to leave a gap in the budget which Basescu said he feared would lead to higher taxes elsewhere.
The 5 percentage point cut in employers' tax to 15.8 percent from Oct. 1 will create a revenue shortfall of 850 million lei ($264.1 million) in government finances in the fourth quarter of this year. The government had said it planned to cover that with higher-than-expected returns from a tax on special buildings.
Ponta had offered assurances, saying the budget deficit will not rise above this year's target of 2.2 percent of gross domestic product. In 2015, the social security tax change will cost 4.8 billion lei, just under 1 percent of GDP.
The International Monetary Fund has postponed a review of the aid deal pending a Nov. 2 presidential election that has raised concerns about fiscal discipline.
($1 = 3.2186 Romanian lei)
(Reporting by Radu Marinas; Editing by Susan Fenton)