Romania’s new coalition government, led by Prime Minister Marcel Ciolacu, has implemented a series of economic measures aimed at curbing the country’s escalating budget deficit. Facing a deficit equivalent to 8.5% of its GDP, the highest in the European Union, the government has enacted an emergency decree that increases taxes and limits subsidies, public sector wages, and pensions. While acknowledging the unpopularity of these measures, Ciolacu insists they are necessary to stabilize the economy and avoid a deeper crisis. He emphasized that the measures are temporary and distinct from the harsh austerity policies of the past, promising adjustments as economic conditions improve.
The core of the plan revolves around increasing revenue and controlling expenditure. A key change is the hike in corporate dividend tax from 8% to 10%, alongside a reduction in the tax threshold for small businesses. Furthermore, tax exemptions and incentives for sectors like IT and construction have been eliminated, and a 1% property tax has been reintroduced for corporate-owned buildings. These measures target specific sectors and aim to generate significant savings for the government. The goal is to reduce the deficit to 7% of GDP by the end of 2025 and further down to 2.5% over a seven-year period through a series of incremental plans. The government projects savings of €26.14 billion by the end of the current year through these measures.
The public response to these economic adjustments has been met with protests in Bucharest, with affected employees expressing concerns about the effective pay cuts resulting from the changes. Prison police officers have also voiced their discontent by refusing to work overtime due to the removal of overtime pay. Protestors have warned the government of the potential social consequences of the financial crisis, characterizing the measures as a “new form of modern slavery.” This highlights the challenging balance the government must strike between fiscal responsibility and social stability.
Prime Minister Ciolacu has attempted to allay public fears by differentiating the current measures from the severe austerity policies of the 1980s, which involved significant salary cuts, VAT increases, and closures of essential public services like schools and hospitals. He has also offered assurances regarding pensions, suggesting either indexation in the latter half of 2025 or one-time stimulus payments for those with lower pensions. Additionally, Ciolacu has pledged to gradually reduce labor taxes, particularly for low-wage earners and families with children. This phased approach aims to mitigate the immediate impact of the changes while addressing long-term economic stability.
The Prime Minister has adopted a stance focused on efficiency and reform, prioritizing long-term economic health over short-term popularity. He has called for public understanding, emphasizing the need for these measures to propel Romania’s development. Ciolacu’s focus is on achieving tangible results and moving the country forward, even if it means facing criticism in the process. This forward-looking perspective suggests a commitment to addressing underlying structural issues within the Romanian economy.
Beyond the immediate measures, the government plans to establish a dedicated efficiency department to streamline state spending and reduce it by at least 1% of GDP. This indicates a broader strategy to address inefficiency and improve resource allocation within the public sector. The government’s approach combines short-term interventions to address the immediate deficit crisis with long-term structural reforms to build a more sustainable and resilient economy. The success of these measures will depend on both their effectiveness in reducing the deficit and the government’s ability to manage the social and political repercussions of the changes.
