New Romanian government issues ambitious governance program focused on reducing expenses
The new Romanian government, headed by the same Social Democratic prime minister, Marcel Ciolacu, recently made its governance program public. Among its objectives are reducing the level of bureaucracy, maintaining the flat tax rate, and reducing the budget deficit to 7% in 2025.
To reach its goals, the government reduced the number of ministries to 16 and is set to cut the number of agencies by at least 25%. It also plans to merge certain services and slash the number of state secretaries. Efficiency audits for each central authority, regional institutions, and state companies will form the basis for proposals for dissolution/merging.
Meanwhile, the Ministry of Finance, passed over from the Social Democrats to the center-right party of the ethnic Hungarian minority in Romania, UDMR, will begin reforms concerning fiscal consolidation. One of Romania’s biggest problems is its current account deficit, which ballooned by 32% y/y and is expected to reach over 8% in December.
The new government aims for a budget deficit below 3% of GDP in the medium term and keeping the gross government debt medium-term below 60% of GDP and the net debt below 55%, in accordance with European fiscal-budgetary rules.
The ministry plans to minimize associated costs and risks with the debt portfolio, continue the development of the domestic market for securities, utilize green bond emissions, and give predictability in the tax system by keeping the flat tax rate for the next 4 years. It also wants a 1.1% increase in public revenues as a percentage of GDP in 2025 and to collect more taxes following the operationalization of the Neptun Deep project.
Other measures include increasing contributions to Pillar 2 pensions from 4.75% to 6% over four years, mainly in the second half of the period, halving CASS contributions for parents with 3 or more children in care, reforming the fiscal policy regarding dividend tax, allowing employers to distribute part of the dividends in the form of shares to employees, and the exemption from CASS for students under the age of 26 who take an internship or job while studying.
The government also plans for an “industrial rebirth” based on investments, state aid schemes, and guarantees. In this way, the governance program says, “Romania will become a technological and industrial hub in Eastern Europe.”
To reach this goal, the executive plans to invest EUR 155 billion in infrastructure in the next 5 years, focusing on transport, environment, education, health, technology, and competitive industries.
Around EUR 10 billion in state aid schemes will also be available for investments in high-tech industries such as the automotive industry, chemical industry, pharmaceutical industry, food industry, metallurgy, construction materials, defense, and energy.
The government also promises a “zero tolerance” policy for tax evasion and a policy of “economic patriotism” meant to stimulate the creation of regional champion companies, especially in the energy sector.
In terms of infrastructure, by the end of 2028, the government promises that Romania will have fully completed the fast road connection between the Black Sea and Central Europe. The first highway which will cross the Carpathian Mountains will also be completed. Missing sections of highways A0, A1, A3, A7, and A8, which ensure continuous connection between major cities, will be completed as well.
In energy, the executive plans a phased deregulation and elimination of the price caps. Instead of the existing caps, a compensation system will seek to protect vulnerable consumers.
(Photo source: Inquam Photos | Octav Ganea)
