Romanian government takes control of fiscal adjustment plan
### Romania's Fiscal Corrective Package: A Comprehensive Overview
The Romanian government has taken a significant step towards addressing its fiscal deficit, which reached 9.3% of GDP in 2024, by accepting a fiscal corrective package worth approximately EUR 2.1 billion. The package, which includes tax increases and spending cuts, was approved by the government on July 4, 2025, and is currently under review by Parliament.
#### Timeline of Events
- **July 3, 2025**: The Romanian government published a draft of the fiscal corrective package, detailing the proposed measures. - **July 4, 2025**: The government approved the package, sending it to Parliament for review. - **July 7, 2025**: Lawmakers were able to submit amendments until this date. - **July 8, 2025**: The package was to be discussed at the ECOFIN meeting. - **August 1, 2025**: Implementation of a 2% VAT rate increase, raising the standard VAT rate to 21%.
#### Key Impact Points
The fiscal corrective package aims to reduce Romania's budget deficit by strengthening revenues and cutting spending. Key measures include:
- **Tax Increases**: The dividend tax will rise from 10% to 16%, starting in January 2026, and the special tax on bank revenues will increase from 2% to 4%, effective as of July 2025. - **VAT Changes**: The standard VAT rate will increase by 2%, reaching 21%, and a new reduced VAT rate of 11% will be introduced for specific products like medicines and basic foodstuffs.
#### Potential Consequences of a No-Confidence Motion
The Alliance for the Union of Romanians (AUR), the largest opposition party, has announced plans to file a no-confidence motion. While this motion is possible within three days of the government assuming responsibility, passing it is unlikely due to the ruling coalition's two-thirds majority. However, there is a possibility of political shifts, such as the Social Democratic Party (PSD) pulling out of the coalition, though this is considered an extreme scenario.
#### Potential Consequences of Fiscal Package Implementation
The Fiscal Council believes that the implementation of the fiscal corrective package could avert a sovereign rating downgrade, emphasizing the urgency and necessity of these fiscal adjustments. The package is expected to have significant economic and social implications, including potential impacts on consumer spending due to VAT increases and on businesses due to tax rises.
Notable exceptions to the contributions include pregnant mothers surging their maternity leave, who are exempted from the requested contribution, and recipients of pensions above RON 3,000 (EUR 600), for whom the contribution to the public health insurance system will be temporary. Additionally, several categories of taxpayers are no longer charged the contribution, as per the amended bill.
The amendments to the fiscal corrective package, which include cutting budgetary allowances to political parties, increasing gambling operator taxation, and temporarily suspending the public health insurance system contribution for pensioners earning over RON 3,000 (EUR 600), were accepted by the government. The new government, led by prime minister Ilie Bolojan, aims to correct the fiscal deficit through this process.
The fiscal corrective package, in its amended form, has an estimated budgetary impact of 0.56% of GDP this year and 4.6% of GDP in 2026. The package will be discussed at the ECOFIN meeting on July 8, 2025, and, if approved, will mark a significant step towards Romania's financial recovery.
- The fiscal corrective package, which includes tax increases and spending cuts, is currently under review by Parliament, as Romania's business world eagerly waits for the consequences on general-news, politics, and the overall economy.
- The potential consequences of the Fiscal Package Implementation, such as increases in VAT and taxes, may impact consumer spending and businesses, causing ripples across Romania's finance sector and affecting the wider business community.
