Romania’s Government could be forced to increase taxes and to cut expenses to compensate for the revenue decline triggered by the social security tax (CAS) cut, by the reduced tax on special buildings and by lower excises. Otherwise, the budget deficit could go up to 2.8% of GDP or about EUR 2.26 billion above the 1.4% level which Romania agreed to with the International Monetary Fund (IMF) and the European Commission (EC), according to the European Commission’s autumn forecast.

“For 2015, Romania's deficit is projected to increase to 2.8% of GDP under a no-policy-change assumption. No draft for the 2015 budget has been brought forward by the cut-off date of this forecast,” according to the EC forecast.

The forecast includes the full-year impact of the cut in social-security contributions that should lead to net loss of revenue of around 0.8% of GDP over the course of 2015. A reduction in the rate of the property tax on special constructions by 0.5 percentage points is expected to lead to a further loss in revenues of around 0.1% of GDP. According to the law, excise rates are expected to be reduced in 2015.

Expenditures should decline somewhat, also on account of slightly lower public investments, but this won’t be enough to compensate for the decline in revenues.

editor@romania-insider.com