Romania's Recession Boosts Grey Economy

Despite legislation adopted last year to repress the phenomenon, about one third of the working population is now invisible to the tax authorities.Over 2.3 million people are working unofficially in Romania, up by around 900,000 compared to four years ago and representing a third of working people in the country, the independent Fiscal Council said on Friday.

Evasion of social contributions, VAT and income tax stood at 10.3 per cent of the country’s GDP in 2010, Fiscal Council data say.

Officials describe the number of people who work but don't officially exist on the labour market as unacceptably high.

Romania’s hidden labour force rose from 1.7 million people in 2006 to 1.4 million in 2008, only to rise to 1.8 million in 2009 and 2.2 million in 2010, according to many estimates.

Analysts say most people involved in this hidden economy work without contracts or paying any tax. Others receive part of their wages under the table.

Unregistered workers work mainly in the hotel and restaurant sector and in the construction and clothing industries.

As Romania's recession has deepened in the last three years, more people have been forced to seek work in the "grey" economy.

A year ago, Romania changed the law to crack down on the grey economy. The new labour legislation, supported by the IMF, allows for more flexible work contracts and part-time employment and imposes fines on employers who hire people without signing contracts or who employ people living illegally in Romania.

But critics say the government would have done better to lower income tax, as that would had help businesses to create new jobs

“Reform of tax collection is direly needed. If Romania collected all its taxes, its budget revenues would be close to the European average,” the Fiscal Council said.

The Fiscal Council is an independent authority, which aims to support the government and parliament in designing and implementing fiscal policy and promoting transparency and sustainability in public finances.