Romania’s president Klaus Iohannis rejected the new Fiscal Code law, which was recently passed by the Parliament, which included the VAT rate cut from 24% to 19% starting January 1, 2016. Iohannis decided on Friday, July 17, to send the code back to the Parliament for review.

The decision is not surprising considering that both the President and the central bank’s Governor Mugur Isarescu said this week that Romania must be cautious with its economic policies as not to disrupt the current balance, which was attained with much effort. Romania’s international creditors (IMF and the European Commission) also opposed the new Fiscal Code, which would increase Romania’s budget deficit.

“The legislators must promote a balanced and reasonable attitude in terms of fiscality so as not to generate dysfunctionalities that need ulterior corrections. This is why the new Fiscal Code should promote neither excessive taxation nor strong fiscal relaxations,” The President wrote in his letter to the Parliament.

He pointed out that the effects of the measures proposed by the new Fiscal Code should be well analyzed, and that these measures should be sustainable on the long term. He added that they should not prevent Romania from fulfilling its international obligations related to fiscal and budgetary discipline. Romania has agreed to reduce its budget deficit for 1.2% (according to ESA standards) according to its Convergence Program and its Fiscal-Budgetary Strategy. This is also a requirement for Romania’s Eurozone entry objective.

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editor@romania-insider.com