The Romanian Government assumes accountability for the first fiscal package

The Bucharest executive has taken responsibility for the first package of fiscal austerity measures

Corina Cristea, 08.07.2025, 14:00

Holding the undesirable record of the country with the largest budget deficit in the EU – 9.3% of the GDP – Romania finds itself in a situation where it must urgently implement financial rebalancing measures. Brussels and rating agencies are closely monitoring the actions of the Romanian Government, which has analysed the situation and the existing recovery options and decided to assume accountability in Parliament for the first package of fiscal measures.

Romania borrows at high interest rates every day in order to function, and if this does not stop, we will end up being labelled as a country not recommended for investment, warned the head of the executive, Ilie Bolojan, who presented the provisions of the fiscal package in plenary on Monday:

“This package mainly addresses the following issues: Reorganisation of the value added tax. The standard rate will be 21%, the reduced rate will be 11% for basic foodstuffs, medicines, firewood, books, sewerage, heating and HORECA, at least temporarily. The necessary increase in certain excise duties. Excise duties on alcohol and fuel will increase by 10%. Excise duties on tobacco will also increase. The introduction of health insurance contributions for pensions over 3,000 lei. Only the portion exceeding this threshold will be taxed. The objective is to increase the number of health contributors. Today, we have just over 6 million contributors and over 16 million beneficiaries. The system cannot function under these conditions. Taxation of large capital. The tax on dividends will increase to 16% from 1 January 2026. Additional profits of banks and gambling companies will be taxed more, and gambling winnings will be surtaxed. Freezing of certain budget expenditures. In 2026, we will no longer be able to increase salaries and pensions in the public sector. The financial capacity to do that no longer exists. Unjustified hiring and bonuses will also be limited.”

These measures are unpopular but absolutely necessary, say government officials, given that almost 40% of the deficit is generated by permanent expenditure, especially salaries, and Romania is, on the other hand, among the countries with the lowest tax revenues in the EU – less than 30% of the GDP, compared to about 40% in Western Europe. We will be in a better situation at the end of next year, says the prime minister, who also announced that the government is preparing a second package of measures that will be presented to Parliament by the end of the month.

According to Ilie Bolojan, the second set of measures targets the reform of special pensions, state-owned companies, as well as local and central administration. For now, the first fiscal package will be considered adopted if, within three days, the opposition fails to table a motion of no confidence against the Bolojan cabinet, which would then have to be endorsed by Parliament. Thanks to the comfortable number of MPs in the ruling coalition, however, the executive is not particularly concerned that it could be dismissed. (MI)