Romanian president discusses fiscal strategy and PNRR with European Commission President von der Leyen in Brussels meetings.
In a bold move to address a growing budget deficit and avoid a potential financial crisis, Romanian Prime Minister Ilie Bolojan has unveiled the country's first fiscal corrective package. This seven-year plan, announced in early July 2025, aims to reduce the excessive budget deficit and bring it in line with European Union (EU) requirements.
The initial package, expected to be endorsed by the government in the coming weeks, is set to be implemented starting August 1, 2025. The plan includes a series of measures aimed at increasing tax revenue and tightening spending controls.
One of the key components of this package is the restructuring of the Value Added Tax (VAT). The standard VAT rate will increase from 19% to 21%, while the reduced rates of 5% and 9% will be unified at 11%. Essential goods and services such as food, medicine, irrigation water, books, firewood, thermal energy, and the hospitality sector (HoReCa) will continue to benefit from the reduced rate. However, the VAT for hotels and restaurants might be further raised to 21% after an evaluation in October 2025.
Excise duties on fuel, alcohol, and tobacco will also see an approximate 10% increase. To mitigate the impact on the transport sector, a partial refund scheme for fuel used by freight and logistics companies is planned.
Another significant measure is the introduction of a health insurance contribution (CASS) on pension incomes exceeding RON 3,000. Contributions to the National Health Insurance Fund will increase by 10% for these pensioners. The tax on bank profits will also be doubled, providing a new source of fiscal revenue.
The package also includes a surcharge on gambling, a reform of school scholarships, caps on public sector pensions and salaries for 2026, and an increase of two hours in the teaching schedule for pre-university and university systems. Starting January 1, 2026, the tax on dividends will rise from 10% to 16%.
The rationale behind these measures is to tackle a growing budget deficit that has reached around 9.3% of GDP, with public debt nearing 58% of GDP. The aim is to comply with EU requirements to reduce the deficit to about 2.8% of GDP by 2030.
The Prime Minister has indicated that this first package will be complemented by two additional packages focused on correcting inequalities, reforming public companies, and fulfilling European funding milestones.
The discussion between President Nicusor Dan and the president of the European Commission, Ursula von der Leyen, centered on the deficit, measures to reduce the deficit, and the National Recovery and Resilience Plan (PNRR). Romania aims to present an updated fiscal plan by the July 8 ECOFIN meeting to avoid sanctions under the Excessive Deficit Procedure.
The first set of normative acts from the fiscal package is expected to pass Parliament in the extraordinary session by the end of July. Some of these normative acts will become effective starting August 1, while others will start on January 1, 2022.
However, it's important to note that ordinances produced by the government become effective from the date they are published in the Official Journal and do not require immediate approval by Parliament. The lawmakers are required to turn the ordinances into laws, a process that may result in their amendment or rejection.
In summary, Romania's first fiscal corrective package is a comprehensive austerity and reform plan targeting tax increases and spending controls. The plan aims to stabilize public finances and restore economic confidence over the medium term.
The fiscal corrective package announced by Romanian Prime Minister Ilie Bolojan is a significant move that intertwines finance, business, and politics, aiming to address a growing budget deficit and align with EU requirements. The plan, to be implemented from August 1, 2025, includes measures such as increasing VAT rates, raising excise duties, introducing a health insurance contribution on certain pension incomes, and doubling the tax on bank profits. These actions are part of a broader strategy to comply with EU deficit reduction targets and maintain Romania's standing in the general-news landscape.