New talks on reducing public spending

The negotiations aimed at finding solutions to reduce the budget deficit continue in Bucharest.

Corina Cristea, 12.06.2025, 13:50

Romania’s complicated economic situation has been analyzed for several weeks by the pro-Western parties – the Social Democratic Party (PSD), the National Liberal Party (PNL), the Democratic Union of Ethnic Hungarians in Romania (UDMR) and Save Romania Union (USR) – who could form the new government in Bucharest. For now, the four political parties have not reached a common position on the measures that should get the state out of the financial impasse it is in regarding the deficit. What is known for certain is that some progress has been made, with unanimously agreed aspects, such as the need to reduce budget spending, maintain large investments or the need to change some taxes. The solutions differ, however, from one party to another.

PSD proposes, for instance, the introduction of the progressive tax and of a solidarity tax for incomes higher than 12,000 lei (about 2,400 Euros). USR and UDMR do not agree with the solidarity tax, and UDMR wants to maintain the flat tax rate. UDMR also wants to preserve the investments that have already been budgeted this year, because they are very important for the economy, and also for the development of the middle class. In turn, PSD and PNL oppose the increase in the VAT or, at most, only in certain areas and accompanied by compensations in other areas, according to a rather complicated scheme, while USR proposes reducing budget spending and not increasing any tax.

There are many options, probably it is for the first time that so many ideas for reducing budget spending have been worked out, but it remains to be seen how many of them will be taken up in the fiscal plan. A plan that even the rating agencies are waiting for. A recent Fitch analysis on Romania shows, for example, that the country rating assessment will depend on the prospects for reducing the record deficit and stabilizing the public debt. In other words, the agency, which will publish the country rating assessment on August 15, implies that if the deficit reduction plan is not convincing, Romania risks being downgraded to the junk category, not recommended for investments.

For the time being, to give a boost to the negotiations, President Nicuşor Dan is expected to participate every day in the discussions between the representatives of the political parties. As he announced during the initial marathon consultations with the four parties, President Nicuşor Dan believes that the priority in reducing the budget deficit must be to cut down on state spending, to combat waste and increase efficiency in revenue collection, the last solution being that of increasing taxes. (LS)