“We must admit that for years our country spent much more than it could afford”, Romanian Prime Minister Ilie Bolognese said last night on Antena 1 television, explaining the unpopular fiscal and budgetary measures that his government will implement to try to control the excessive budget deficit, which reached 9.3 percent of gross domestic product (GDP) last year. The measures include increases in various taxes, fees and excise duties and were met with a wave of public discontent and protests, and the main opposition force – the nationalist party “Alliance for the Unification of Romanians“, announced that it would submit a vote of no confidence against the government, BTA reports.
Prime Minister Ilie Bologian warned yesterday in parliament that if no action is taken, “Romania would go back 15-16 years, to one of the most severe situations of economic and political instability“ after the fall of the communist regime in December 1989.
He was referring to the economic crisis in 2009, when Romania faced a sharp contraction in GDP (-7.1 percent) and a surge in the deficit (8.6 percent of GDP), which forced Bucharest to conclude a stand-by agreement with the EU and the IMF and implement painful austerity measures, including a 25 percent cut in public sector wages and an increase in VAT from 19 to 24 percent.
To illustrate the current situation, Prime Minister Ilie Bologian asked Romanians to do the following calculation: (…) Out of 100 lei collected in taxes and fees from citizens, Romania spends about 132 lei, that is, 32 lei more, which are clearly borrowed. I ask you to think about how long a family can last that spends 30 percent more than its income every month, and to transfer this picture to the state level and you will understand the situation Romania is in“.
“Not one, not two, but three packages of fiscal measures will be implemented by the Romanian government to avoid the so-called “Greek scenario” or bankruptcy of Romania, which would mean (among other things) that the state would no longer be able to pay pensions and salaries, and unemployment would explode," commented the Romanian news site "Recorder".
The first package, for which the government took responsibility yesterday in parliament, aims to put Romania on the trajectory of a 7-year fiscal budget plan, which envisages reducing the budget deficit to below 3 percent of GDP by 2031.
The government explained that Romania must maintain investor confidence and avoid a downgrade of the country's credit rating.
Currently, international rating agencies place Romania on the last rung of the investment grade, that is, just one step away from the "Junk" category. (junk), characterizing a “country in which investments are not recommended“.
The government also explained that if it does not take action to correct public finances, Romania is threatened with the suspension of European funds, including under the National Recovery and Resilience Plan (NRRP), which provides the country with funds totaling over 28 billion euros. For the fourth payment under the NRRP alone, Romania expects 2 billion and 680 million euros gross, or 0.7 percent of GDP.
Prime Minister Ilie Bologian admitted yesterday in parliament that the measures proposed by the government are unpopular and thanked Romanians for their patience and understanding. He gave assurances that “this difficult period“ will be limited in time and said that “if we do what we need to in the coming months, at the end of next year we will be in a different situation“.
What measures does the first fiscal-budgetary package contain?
From August 1, 2025, the standard value added tax (VAT) rate will change from 19 to 21 percent. The currently existing lower VAT rates of 5 and 9 percent will be increased from August 1 to 11 percent. The reduced VAT of 11 percent will apply to basic food products, medicines, firewood, books, water supply, sewage and district heating, as well as access to museums and other cultural institutions. The hotel and restaurant industry will also remain at a reduced VAT rate of 11 percent.
Pensioners with pensions of over 3,000 lei (1,160 leva) will pay a health contribution of 10 percent on the amount exceeding 3,000 lei. The government explained that the beneficiaries of the health system are over 16 million, and those who contribute to it are just over 6 million people, making the system unsustainable.
Persons on parental leave will also pay a health contribution of 10 percent with withholding tax, and the same measure will apply to the unemployed and people with minimum incomes.
Excise duties on fuel, alcoholic beverages and cigarettes will increase by 10 percent from August 1.
From January 1, 2026, the government plans the following measures:
Freezing salaries and pensions at their current levels, limiting appointments and unjustified bonuses. This measure has sparked numerous protests in the past two weeks.
The student scholarship system will be reorganized to become sustainable and merit-based. Scholarships will be awarded only for grades above 9 (Romania has a ten-point system) and for a maximum of 15 percent of the class.
Regarding the protests by students and pupils, Prime Minister Ilie Bologian noted that in the past three years the value of scholarships has increased more than 25 times - from 188 million lei to 4.7 billion lei, reaching anomalies such as an entire class receiving scholarships for merit without real results. Regarding social grants, the Prime Minister said that they will reflect real needs.
From next year, the tax on dividends will increase from 10 percent to 16 percent.
Gambling income will be subject to a withholding tax from January 1, 2026, which will be determined for each payment according to a tax scale depending on the profit - up to 10,000 lei (4 percent), between 10,000 lei and 66,750 lei (400 lei plus 20 percent on the amount over 10,000 lei), and for profits over 66,750 lei, the tax will be 11,750 lei plus 40 percent of the amount over 66,750 lei.
From January 1, 2026 in addition to the profit tax, banks will pay a specific turnover tax.
The main opposition force, the Alliance for the Unity of Romanians (AUR), announced that it would file a vote of no confidence against Bolognese's cabinet over the austerity measures.
"In the face of this betrayal, AUR will fulfill its duty as an opposition party and will take all possible steps to file a vote of no confidence against the government led by Mr. Ilie Bolognese," said the leader of the AUR parliamentary group, Mihai Enache, at a press conference in parliament yesterday.
The government pushed the austerity measures through parliament through a procedure called "assumption of responsibility", in which a bill is considered adopted if a vote of no confidence is not filed against the government within three days. If a vote of no confidence is tabled and supported by a majority of deputies and senators, the government falls.
There are currently 466 members of parliament in the Romanian parliament - 136 senators and 330 deputies. The opposition can count on 153 parliamentarians, and a vote of no confidence requires 234 votes.
Romanian Prime Minister Ilie Bolognese noted in his speech to parliament yesterday that there is talk in the public sphere that the proposed austerity measures “only the poor will suffer, and salaried workers will lose nothing“.
“I want to assure all Romanians of one very clear thing. I am a prime minister who has a mandate and takes full responsibility that everything I have said will be put into practice, will happen. Otherwise, I will no longer be Prime Minister“, said Bolognese and announced that two more packages of measures will follow, which aim to put finances in order and bring social justice and good governance with respect for citizens.
Bolognese said that by the end of July, a second package of measures will be presented to parliament with a focus on fairness and efficiency. It will include a reform of special pensions by eliminating exceptions, correct calculation of pensions and entry into retirement at a common age; reform of state-owned companies and autonomous bodies, including the Financial Supervisory Authority (ASF), the National Authority for the Management and Regulation of Communications (ANCOM) and the National Energy Regulatory Authority (ANRE). Bologhian promised to reduce the number of members and remuneration in the management boards of these bodies, as well as transparency of activities and contracts.
In the second package of measures, the government will include reform of local and central government by reducing the budget apparatus, decentralization and digitalization.
Another goal of the cabinet is the fight against tax evasion and fraud with public funds.
Prime Minister Ilie Bologhian called on his coalition partners to support their colleagues in the government who are making reforms, and the opposition - not to block the reforms.
“Fostering division cannot lead to an increase in salaries and pensions“, Bologhian addressed the opposition. “This is the only true economic patriotism, not the one written in election leaflets“, the prime minister was quoted by Romanian media as saying.
By the end of the summer, the government will prepare a third package of measures, and an analysis of state revenues will be made in October. Then, if necessary, the hotel and restaurant sector may also switch to the standard 21 percent VAT rate, local media reported.