From spending cuts to tax increases

The interim president Ilie Bolojan recommends expenditure cuts, as the Romanian state has spent too much in recent years

Leyla Cheamil, 25.03.2025, 14:00

Over the past few years, Romania has spent more than it could afford. This is the conclusion reached by the interim president Ilie Bolojan, who said that a sustained effort is needed in the next two years to address budget deficits and revive the economy.

In a televised statement, the head of state said the solutions in this case are to cut operating expenses or to raise taxes and duties, and in this context he mentioned improved tax collection, since large amounts from VAT, for instance, are yet to be cashed in by the government.

However, the interim president said, increasing the tax burden should be the last resort, only used in extreme situations.

Ilie Bolojan: “I believe that if we act in an orderly manner and do things in such a way as to reduce our expenses, to help the economy grow, to use EU funding, then we can avoid this scenario. If we don’t, this scenario will be inevitable. Which taxes will be raised is a secondary discussion already. The point is that the burden on taxpayers, whether we talk about a VAT increase or about raising other taxes, means money taken from people’s pockets, either through the price of products, if we increase the VAT, or from people’s salaries. So that’s where we will end up and all these postponements so far, because, really, it doesn’t sound good to tell people the truth, they only turn things into chronic problems.”

Asked where exactly the most unjustified spending is taking place, Ilie Bolojan answered that, in his opinion, we need to look at many state-owned companies. At the same time, he warned that Romania has taken out substantial loans. “Last year we took out about a billion euros in weekly loans to ensure some budgetary balance,” he said, and added that the interest on these loans will go up by the year and, regardless of which government will be in power next year, in two or three years it will not be able to escape this reality.

Mr. Bolojan also said that action must be taken with a sense of urgency. “The effort required to address the budget deficits a little and to pave the way for the recovery of the country will take a year, a year and a half, perhaps even two years,” he explained.

Moody’s financial rating agency has kept Romania at the lowest investment-grade level, but revised the country’s credit rating outlook from stable to negative. According to Moody’s, without further tax reform and spending cuts, the budget deficit is expected to remain high this year, reaching 7.7% of GDP. The agency also says Romania is exposed to geopolitical risk due to the war in neighbouring Ukraine. Moody’s was the only one of the three major agencies that had a stable outlook for Romania’s sovereign rating. Fitch and Standard & Poor’s had already revised the outlook to negative, placing Romania one step away from the junk category, not recommended for investment. (AMP)