The written proposal, presented last week to representatives of the European Commission by the Prime Minister and the Ministry of Finance, estimates a budget reform in 2025, with the tax reform to be carried out in 2026.
The aim is to reduce the budget deficit by 0.7% in 2025, with taxation solving the budget deficit problem in the years to come.
The Commission has not yet consented to this proposal, while not rejecting it, according to CursDeGuvernare sources involved in the mainly written dialogue between Brussels and the Romanian side. This despite the fact that Prime Minister Marcel Ciolacu and PNL President Nicolae Ciucă already announced that they have convinced Brussels not to raise taxes in 2025.
Basically, Victoria Palace leaders hope to solve the deficit problem starting 2025 through austerity measures to reduce the deficit by 0.7%.
There is, however, a more radical plan, in case Bucharest leaders cannot comply with their own proposal:
Starting August, the Government of Romania, through the Ministry of Finance, and the European Commission had an intense exchange of documents and information regarding two major subjects, according to CursdeGuvernare sources.
The compromise proposed to the Commission would be: if serious measures to reduce public spending are not taken in the first quarter of 2025, fiscal measures will be adopted in the following quarter, including, if necessary, an increase in VAT.
This compromise is based on two reasons:
1. NAFA (National Agency for Fiscal Administration) will have a clear picture of the revenues generated through digitization (e-Transport, e-Factura and e-TVA, as well as the luxury tax) only after the first quarter of 2025.
2. Regardless, the VAT increase, the simplest deficit tax control measure, can only be enforced six months after the approval of the decision by the government, according to the Tax Code.
How the budget reform will be carried out, according to proposals from Bucharest
Sources involved in the negotiations between Brussels and Bucharest told CursDeGuvernare that there is a list with some of the measures sent in by the Ministry of Finance to reduce budget expenses.
1. Freezing and even reducing personnel expenses in 2025. This could also mean layoffs, should the project to increase minimum wage to over RON 4,100 be implemented next year.
To reiterate, the state employees’ salary scale is calculated based on coefficients related to the gross minimum salary. In short, if the gross minimum wage increases, the salaries of state employees will also increase, which would mean resorting to redundancies in order to freeze the public wages expenditure.
The draft law initiated by the government for Romania to have a gross minimum wage equal to half of the gross average wage needs only the vote of deputies.
2. Altering the public procurement system
The government promised to enforce cost standards in public procurement to stop overpriced contracts.
Starting 2025, public authorities would make public procurement with similar costs: from pens and medical devices to construction costs per square meter for buildings and roads.
Moreover, the National Centralized Procurement Office has already called for tender in SEAP (Electronic Public Procurement System) a contract with a maximum value of RON 903 million for the purchase of portable ultrasound and ultrasonography machines to equip family medicine offices in all country regions.
3. Reforming administration.
The Government and the Ministry of Finance also promised in Brussels they would address the issue of administrative reorganization again. We could not find further reliable details about how this reorganization would come about. One of the proposals is the abolition of county prefects and the appointment of a regional prefect. Decentralized institutions would no longer be county-level, but regional.
4. Improving capitalization of the state’s real estate fund, by selling or renting spaces that are not currently used.
Probable taxation measures for 2025
There are however two fiscal measures imperatively requested by the European Commission on the list of measures proposed by Romania:
1. Firstly, taxing micro-enterprises.
The last proposal sent to Brussels is for these companies to be taxed with 3% of revenues if the turnover is below RON 450,000 (EUR 88,500). If this threshold is exceeded, the 16% profit tax will be enforced. The threshold is currently EUR 500,000. This measure is related more to the PNRR than to the European Financial Stability Mechanism concerning deficit.
2. Eliminating tax facilities concerning labor and VAT. At the moment, certain categories of products and services benefit from reduced VAT rates of 9% and 15%, instead of the standard rate of 19%. However, the government wants to maintain the reduced 9% VAT on food.
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