Approved: Budgetary Package Worth 2.1 Billion Euros by Romanian Government for Debt Reduction Efforts
The Romanian government has approved a fiscal correction package on July 4, 2025, aiming to address the country's budget crisis and high public deficit. Here's a comprehensive overview of the measures included in the package.
## Key Components of the Fiscal Package
The package encompasses several significant changes, primarily focusing on tax increases, public spending adjustments, and modifications to health insurance contributions.
1. **Tax Increases:** - **Value Added Tax (VAT):** The standard VAT rate will increase from 19% to 21%. - **Excise Duties:** Higher excise duties will be imposed on certain goods. - **Dividend Tax:** The dividend tax is set to rise.
2. **Public Spending Changes:** - **Freeze on Public Sector Wages and Pensions:** Public sector wages and pensions will be frozen until the end of 2026. - **Spending Caps:** Spending across the public sector will be capped.
3. **Healthcare and Insurance:** - Changes to health insurance contributions will be implemented to help improve the budget balance.
## Impact on GDP and Public Deficit
The fiscal package is expected to have a budgetary impact of 0.6% of GDP in 2025 and 3.35% of GDP in 2026. This includes a reduction in spending of about 1.6% of GDP and an increase in revenues of 1.75% of GDP in 2026. The aim is to reduce the public deficit from 9.3% of GDP in 2024 to below 6% of GDP by 2026.
## Additional Measures for Future Years
In 2026, additional measures are expected, including a recalibration of the property tax calculation method and the introduction of an environmental tax for means of transport, which will further contribute to increasing budget revenues.
## Political and Social Impact
The austerity measures have sparked widespread protests, particularly from healthcare and education sectors, with potential general strikes threatened for September. The ruling coalition holds a strong majority, but there is a possibility of opposition actions, including no-confidence motions.
Without a fiscal package, Romania's deficit is expected to reach 8.6% of GDP in 2025, according to the European Commission's spring forecast. The government estimates that 0.45% of the fiscal effect will come from revenue increases. In the health system, public contributions will expand, and pensioners earning above RON 3,000 per month will pay a 10% health contribution on the excess amount.
The fiscal package's magnitude is less than one-third of the declared RON 35 billion (EUR 7.1 billion), or 1.8%-of-GDP fiscal correction target for this year. Co-insured family members of policyholders will be required to make minimum contributions in the health system, and short-term medical leave will also see reduced wage coverage. Capped expenditure on public employees is included in the fiscal package.
The Romanian government adopted a fiscal corrective package worth RON 10.7 billion (EUR 2.1 billion) on July 4. Road tolls will increase by nearly 80%, and the special tax on bank revenues will rise from 2% to 4%, except for small banks. The package aims to improve the general government budget balance in line with the consolidation trajectory recommended by the European Union.
The fiscal correction package approved by the Romanian government on July 4, 2025, has significant implications for both the business and finance sectors, as it includes tax increases and public spending adjustments. For example, the standard Value Added Tax (VAT) rate will increase, along with higher excise duties and a rise in the dividend tax. Concurrently, the political landscape is impacted, as the austerity measures have prompted widespread protests, particularly from healthcare and education sectors, raising questions about potential general strikes and opposition actions. In the general-news arena, the package's success in addressing the country's budget crisis and high public deficit will be closely monitored.
