Despite promises by Romania's new President Nicos Dan during his election campaign that the package of measures to reduce the excessive deficit would not include an increase in the value-added tax (VAT), his appointed Prime Minister Ilie Bologian announced yesterday that such an increase would be included, BTA reports.
In his speech, Bologian, who is the leader of the National Liberal Party and heads a broad coalition that also includes the Social Democratic Party, the Union for the Salvation of Romania and the Democratic Union of Hungarians in Romania, made references to the economic crisis in Romania in 2009, when the country faced a sharp contraction in gross domestic product (-7.1 percent) and a surge in of the deficit (8.6 percent of GDP). A year later, in 2010, Romania took a series of painful austerity measures under a standby agreement concluded with the IMF and the EU, including a 25 percent reduction in public sector wages and an increase in VAT from 19 to 24 percent, the publication Economedia reminds.
Bolojan stressed that the crisis then came precisely because measures were not taken in time and noted that the situation is not much different now. He recalled that last year Romania had the largest budget deficit among the countries in the European Union (9.3 percent of GDP) and the second largest in the last 30 years (after a 9.4 percent deficit of GDP in 2010). He even made a comparison with Greece during its 2009 debt crisis, which almost led to the country's exit from the eurozone, adding that "Romania is in a better situation than Greece and we should not repeat the mistakes of other countries".
Among the measures announced yesterday, the prime minister mentioned a 10 percent increase in excise duties on alcohol, fuel and tobacco, a freeze on pensions and salaries in the public sector in 2026, an increase in the dividend tax from 10 to 16 percent, a limitation on the number of scholarships granted to students, as well as the withholding of health insurance contributions from pensions over 3,000 lei (the euro is exchanged for 5.06 lei), and others.
One of the measures that caused the most reactions and comments in the media is the planned increase from August 1 in VAT, whose standard rate of Since 2017, it has been 19 percent, and the two reduced rates are: 9 percent - for food products, beverages, medicines, restaurant services, pesticides, fertilizers and others, and 5 percent - for textbooks, hotel services, museum fees, ecological and traditional products and others. The new standard VAT rate will be 21 percent, and the reduced rate - 11 percent, Bologian announced on Wednesday. He noted that the current VAT rate is the third lowest in the EU.
Mediafax Agency notes that the planned cost-cutting measures are aimed at "pacifying" the European Commission, which has been keeping Romania under surveillance for its excessive deficit since 2019. The first part of them is planned to enter into force on August 1, 2025, and the second - on January 1, 2026. According to the publication, the measures coming into force on August 1 (including the VAT increase) should bring an additional 23.36 billion lei (1.23 percent of GDP) to the budget this year and 44.48 billion lei (about 2.2 percent of GDP) next year. The effect of the measures coming into force on January 1, including an increase in the dividend tax and the price of vignettes, is estimated at 31.81 billion lei (1.56 percent of GDP) in 2026.
Digi 24 TV commented in its article on the subject that the effects of the measures taken by the Bolognese government to reduce the gap between state revenues and expenditures will mean higher prices and lower incomes. The increase in VAT and excise duties will be felt immediately on the shelf, in pharmacies or at the gas station pump, and this means reduced purchasing power, with low-income people being the hardest hit, the media outlet states.
The Hotnews website, in turn, quotes economic analyst Adrian Codirlasu, chairman of the Romanian branch of the organization for financial education for professional investors "CFA Institute", who predicts that as a result of the announced measures "inflation will become double-digit", and "the base scenario for this year is a recession". Romania's 2025 budget is based on a forecast for economic growth of 2.5 percent, and according to the National Bank of Romania's forecast, inflation at the end of the year will be 3.8 percent.
The planned VAT increase, as well as some of the other measures, have also worried businesses, writes the Romanian edition of RFE/RL, citing the Confederation of Employers "Concordia", which represents about 450,000 employees from 3,900 small and large companies. The organization believes that the package of measures constitutes "aggressive overtaxation of the private sector".
"The drastic increase in VAT - from 19 to 21 percent for the standard rate and from 9 to 11 percent for food and medicines - will directly hit the purchasing power of Romanians and will significantly increase operating costs for all companies. We will also witness new inflationary impulses, considering that Romania already has the highest inflation in the EU," warns "Concordia".
According to Eurostat data, Romania remained the country with the highest inflation in the EU in May, with consumer prices increasing by 5.4 percent on an annual basis.
The "Adeverul" newspaper asks how it came to pass that centrist President Nikusor Dan, who won the elections in May, agreed to an increase in the VAT rate, after he firmly promised during the election campaign that this tax would not change. According to the publication, a key argument for this decision was Bologian's discussion with representatives of the Fitch rating agency, which is due to make a new assessment of Romania's credit rating in August.
"Those from Fitch said very clearly that Romania must take urgent measures to reduce the deficit, because otherwise on August 15, when the assessment will be made, we risk being downgraded to the "Junk" category. This would mean a catastrophe for Romania, it would further increase the interest rates at which we take out loans. Therefore, the only solution that could quickly bring money into the budget was an increase in VAT," an unnamed member of the government explained to the publication.
With this conclusion, Ilie Bologian went to the "Cotroceni" presidential palace to convince Nikusor Dan that there was no other solution without increasing VAT. The head of state initially rejected the idea, but eventually agreed to break his campaign promise, the publication states.
Bolognese himself warned at the press conference where the measures were presented that Romania risks its credit rating falling into the "Junk" category, where investments are not recommended.
Currently, international rating agencies place the country on the last step of the investment grade, meaning Romania is only one step away from the "Junk" category. At the same time, all three leading agencies - Standard & Poor's, Fitch and Moody’s - changed the outlook on the country's credit rating in their latest reports from "stable" to "negative".
Romanian Prime Minister Ilie Bologian announced on Wednesday a large-scale package of fiscal measures aimed at reducing the excessive budget deficit. At the moment, it is among the highest in the European Union, writes the BPTK website.
At a press conference at the "Victoria" Palace Bologna stated that the measures are urgent and necessary to avoid a severe financial crisis, similar to the one in Greece in 2009.
Increased VAT
Among the main changes is the increase in the basic VAT rate from 19% to 21%, starting from August 1, 2025. The reduced VAT rate will be fixed at 11% and will apply to essential goods and services such as food, medicines, thermal energy, firewood, drinking water and the NoResA sector (hotels, restaurants and catering). In addition, excise duties on alcohol, tobacco and fuels will increase by 10%.
Another measure is the freezing of public sector salaries and pensions throughout 2026, as well as the introduction of health contributions for pensioners with incomes above 3,000 lei (a little over 600 euros) per month.
From January 1, 2026 The tax on dividends will increase from 10% to 16%, and gambling profits will be subject to higher taxation. A new tax on bank profits will also be introduced.
Bologna stressed that these actions are part of a three-stage plan, the first of which will be adopted through a vote of confidence in the &P;parliament. He justifies the urgency with the need to restore investor confidence and prevent Romania's credit rating from being downgraded to "junk" status.
A second package of measures is coming
The Minister-President also promised a second package of measures, which will be announced by the end of July. It will be aimed at "overcoming systemic inequalities and implementing structural reforms".
These will include restructuring state-owned enterprises, reviewing special bonuses and allowances, and reorganizing the scholarship system for pupils and students, which has suffered significantly in recent years. distribution.