Romania’s president-elect Nicușor Dan stated on May 22 that increasing the value-added tax (VAT) rate is not a preferred option in the fiscal consolidation strategy currently being discussed with the caretaker government and political parties involved in forming the next executive, Economica.net reported.
“I try not to take this into account,” Dan said in reference to a potential 2 percentage point increase in the standard VAT rate, currently set at 19%. While he acknowledged that the fiscal impact of such a measure has been assessed, he described it as “purely theoretical” due to its likely negative side effects, including a rise in tax evasion and reduced consumption.
Dan also ruled out eliminating preferential VAT regimes for certain categories of goods and services, suggesting the government seeks alternative paths to fiscal consolidation to minimise the burden on consumers.
Talks with the Ministry of Finance on addressing Romania’s budget deficit are ongoing. “We are making progress on things that can be cut from expenses, but we still have work to do,” Dan said, referring to efforts to reduce public spending in line with commitments made under the EU’s fiscal framework.
In response to the Social Democratic Party’s (PSD) conditions for joining the next governing coalition – among them the continuation of public investment – Dan expressed cautious agreement but noted that the feasibility of such spending would depend on borrowing costs.
“Everyone wants investments, but it also needs to be seen at what pace these can be made and at what interest rates,” he said.
Public investment is expected to be a key point of negotiation in coalition talks. Dan indicated that “all the conditions are set to be negotiated” and that decisions on the pace and scale of investment must consider the fiscal space and the interest rates on loans required to fund them.
Romania is under pressure to present a credible fiscal plan after missing its April 30 deadline for submitting the annual deficit reduction report to the European Commission and faces a 2024 deficit of 9.3% of GDP under ESA methodology.
iulian@romania-insider.com
(Photo source: Facebook/Nicusor Dan)
Leave a Reply