Fiscal corrective package unveiled by Romanian Govt. disappoints investors

Romania’s government published the package of fiscal measures aimed at bringing the fiscal deficit downward and preventing the slippage expected under the no-change-in-policies scenario.

The government plans to bring to budget an average of RON 20 million per year over 2024-2027 by a combination of tighter taxation (minimum profit tax and tighter taxation of SMEs suspected of being used for tax optimisation) and elimination of tax allowances while cutting the expenditures by RON 3.3 billion on average over the same period.

This year, the expenditures are expected to be reduced by RON 631 million, insufficient to bring the deficit down to 4.4% from the 6.8% projected under the no-changes-in-policy scenario. We expect the actual deficit to exceed even the 5.5%-of-GDP target unofficially negotiated with the European Commission.

The investors’ associations blamed the government for placing the largest part of the burden (some 85%) on their account while cutting the budget expenditures comparatively less (15% of the overall package) compared to the 50:50 burden sharing promised, Ziarul Financiar reported. The package is expected to dampen the growth via reduced consumption and higher inflation while arguably reaching its target of reducing the structural deficit.

In terms of electoral effects, the package visibly impacts the voters of the Liberal Party (PNL), who are expected to express their disappointment by shifting to other political vehicles if such options prove reliable. Subsequently, the Social Democrats (PSD) strengthened their position in the political alliance expected to survive the elections next year.

(Photo source: Juan Moyano/Dreamstime.com)