The Romanian government will implement tax hikes and spending reforms starting August 1 in an attempt to curb the growing budget deficit and avoid a looming financial crisis, prime minister Ilie Bolojan announced. The measures include increases in VAT and excise duties, a new health contribution on pensions, and a doubling of the tax on bank profits.
Bolojan said the government will assume responsibility for the fiscal package next week, bypassing a full parliamentary vote.
Under the new plan, the standard VAT rate will rise from 19% to 21%, while reduced VAT rates – currently 5% and 9% – will be unified at 11%. These changes affect essential goods and services such as food, medicine, water, books, firewood, district heating, and the hospitality sector. The VAT rate for hotels and restaurants may increase further to 21% after an evaluation in October, Biziday.ro reported.
Excise duties on fuel, alcohol, and tobacco will also increase. To soften the blow for the transport sector, the government plans a partial refund scheme for fuel used by freight and logistics companies.
Additionally, a health insurance contribution (CASS) will apply to pension income exceeding RON 3,000, but only on the amount above that threshold.
“An important element we are considering is the additional taxation of capital. We will propose and adopt a measure that will come into effect starting January 1, to increase the dividend tax from 10% to 16%. All the other measures I have mentioned are expected to come into effect starting August 1,” prime minister Bolojan said.
“We will also impose an additional tax on bank profits. Banks in Romania have some of the highest returns on capital in this part of Europe, and I believe they can contribute more to the state budget. We will also apply a surtax on all gambling winnings, so that we collect at least 30% more from this category of income,” he added.
Other reforms, to be part of a second phase, include adjusting royalties, selling underused state assets, and reviewing “cascading bonuses” in ministries where salaries have doubled through cumulative allowances. Special pension legislation, state agency restructuring, and spending reductions at self-funded institutions like the ASF, ANCOM, and ANRE are also part of the plan.
Wage and pension freezes in the public sector, a property tax overhaul based on market values, and further institutional reorganization are to continue the fiscal reform in 2026.
In education, beginning the following school year, teaching hours in schools and universities will increase by two hours weekly, without a corresponding salary raise. Teachers will now deliver 18 or 20 hours of instruction per week within a 40-hour schedule. Payments for additional teaching hours will be significantly reduced. The scholarship system will also be restructured: merit scholarships will become limited, while social grants will be targeted toward disadvantaged students, according to Biziday.ro.
The fiscal reform package comes amid rising pressure from the European Union. Romania recorded a 9.3% budget deficit in 2024 – the highest in the EU – prompting the ECOFIN council to issue a warning and demand immediate corrective measures ahead of its July 8 meeting.
Prime minister Bolojan defended the tough measures, warning that without intervention, Romania risks defaulting on its financial obligations. “We are spending RON 132 for every RON 100 we collect. No family could survive this for long – neither can a country,” he said.
He also warned of consequences similar to Greece’s 2009 crisis, including losing access to EU funds, being downgraded to junk status by investors, and entering a deep recession marked by job losses and currency depreciation.
Bolojan acknowledged that the VAT hike may slightly increase inflation but stressed that such measures are the only ones still trusted by financial markets. “This is the eleventh hour. If we don’t act, we risk not being able to pay salaries or pensions. The public must understand how serious the situation is,” he stated.
The prime minister also announced plans to reduce inefficiency in state-owned companies, cut back on unjustified bonuses, and hold public managers accountable for overspending. Ministries are currently reviewing staffing and budget plans, with the possibility of unpaid leave or other cost-saving measures if reductions cannot be implemented.
irina.marica@romania-insider.com
(Photo source: Gov.ro)
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