The Romanian government adopted a fiscal corrective package on July 4 worth RON 10.7 billion (EUR 2.1 billion), equivalent to 0.56% of GDP. The package includes tax increases, reductions in public spending, and changes to health insurance contributions aimed at improving the general government budget balance in line with the consolidation trajectory recommended by the European Union under the Excessive Deficit Procedure (EDP).
The public deficit hit 9.3% of GDP in 2024, 1.4% of GDP above the 7.9% estimate included in the medium-term fiscal-structural plan (MTFSP) drafted by Romania last fall and approved by the European Commission in January 2025. The deviation adds pressure to the fiscal consolidation trajectory, which was already revised by the Commission on June 23.
The legislation, published in draft form on July 3, was sent to Parliament for review ahead of the July 8 Ecofin meeting. It will be enacted through a special procedure, with the government assuming responsibility for the bill without a parliamentary vote.
Lawmakers may submit amendments until the morning of July 7. A no-confidence motion may be filed within three days of the government assuming responsibility, though the ruling coalition holds a two-thirds majority.
Key measures include raising the standard VAT rate from 19% to 21% starting on August 1. Preferential VAT rates of 5% and 9% will be replaced by a single rate of 11%, applicable only to a limited range of goods and services. The excise duties, including on fuels and alcohol, will rise by around 10% from August 1 and again in January 2026 under a revised scheme.
The dividend tax rate will increase from 10% to 16% beginning in January 2026. A special tax on bank revenues will rise from 2% to 4% as of July 2025, except for small banks. Road tolls will increase by nearly 80%.
In the health system, public contributions will expand. Pensioners earning above RON 3,000 per month will pay a 10% health contribution on the excess amount. Co-insured family members of policyholders will be required to make minimum contributions. Short-term medical leave will also see reduced wage coverage.
Public sector wage and pension levels will remain unchanged in 2026, remaining at November 2024 levels for a second year. Other measures include capped expenditure on public employees and cuts in health and education-related spending.
Overall, the government estimates that 0.45% of the 0.56%-of-GDP fiscal effect will come from revenue increases, with the remainder from spending reductions.
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 – which looks like the ideal scenario.
According to the European Commission’s spring forecast, issued on May 19, Romania’s deficit is expected to reach 8.6% of GDP in 2025 without a fiscal package. This would, in principle, bring the deficit to 6.8% of GDP if the full RON 35 billion consolidation target is met and the 8.6%-0f-GDP projection sketched by the Commission in its May 19 Spring Forecast remains valid (which is uncertain).
As a 7.5% of GDP deficit would still be considered acceptable by rating agencies and EC officials, this means that further measures worth at least 0.6% of GDP are sufficient in the subsequent packages to be endorsed by the government.
iulian@romania-insider.com
(Photo source: Inquam Photos/Octav Ganea)
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