Fiscal reform should be applied urgently

The European Commission warns that Romania must quickly and decisively implement the fiscal reform assumed within the fiscal plan for seven years, in the context of a high budget deficit and persistent macroeconomic imbalances. The reform is considered essential for both the correction of excessive deficit and for avoiding sanctions at European level.

Romania, which ends the year 2024 with a budget deficit of 9.3% of GDP, missed the deadline of April 30 for the transmission of the progress report on the reduction of the deficit, being the only Member State in this situation. The Commission will publish on June 4, the official evaluation of the progress registered by the Member States, and the expectations are for Romania to have a critical message and firm requests regarding compliance with the commitments.

According to the Commission, the fiscal plan agreed at the end of last year includes a reform that should increase the budget revenues by 1.3% of GDP (approximately 25 billion lei) in 2025 and by 1.7% of GDP in 2026. The measures stipulated should have been applied starting April 1, but the Government has postponed their adoption. The delay endangers not only the fiscal objectives, but also Romania’s access to European funds, including the fourth tranche of PNRR.

The Commission stresses that, in the absence of fiscal reform, the budget deficit of Romania could remain at high levels – around 8.5% of GDP in the next two years. For the current year, the estimation indicating a deficit of 8.6%, without additional corrective measures. According to information obtained by Profit.ro, the Romanian authorities take into account a budget adjustment of about 40 billion lei, which indicates that the current measures adopted-such as increasing the tax on dividends, eliminating exemptions and introducing the tax on assets (the so-called « pillar tax »)-are insufficient.

European officials warn that the delay of the reform can have significant consequences, including the initiation of a procedure to suspend new commitments with European funds. At the same time, the failure to fulfill the jelly on the tax reform in PNRR can block the submission of the payment request with the number four.

Currently, Romania is subject to an excessive deficit procedure, being subject to a recommendation of the EU Council that establishes the deadline of April 30, 2025 for the adoption of effective correction measures. The Commission collaborates with the authorities in Bucharest to identify additional fiscal consolidation measures, but stresses that they cannot replace the fiscal reform provided in the fiscal plan.

In this context, working groups consisting of representatives of the main political parties (PSD, PNL, USR, UDMR) are currently analyzing a package of measures that include discounts of expenses, bonuses and benefits, capping the premiums in the public sector and institutions.

The European Commission points out that only through a coordinated, prompt and credible action, Romania can restore the fiscal discipline and the confidence of the financial markets. The adjustment effort cannot be postponed, and a possible new government will not have the opportunity to reduce this effort without major risks for the country’s economic stability.