Romania’s fiscal reform: tens of measures but no plan

Romania’s prime minister Marcel Ciolacu (Social Democrat, PSD) and his finance minister Marcel Bolos (Liberal, PNL) held on August 2 a new press conference to unveil tens of measures aimed at cutting the unnecessary public spending, part of the broader fiscal corrective plan that remains still unclear.

The plan, which is supposed to be enforced as of September 1, despite the legislation that required a 6-month time lag, seems, however, blocked as the Government is under extreme pressure from employers’ organisations on the one side (“the economy will collapse, IT experts, construction workers and investors will leave the country”) and the more informal clientelism in the budgetary sector on the other side.

The Government’s latest press conference on August 2 was a “chat-like” meeting with media representatives, as put by Ziarul Financiar, where “figures and principles” (Curs de Guvernare) were made public along with a 44-page draft ordinance for “public services decentralisation and economic-financial discipline” that the Liberal Party already denounced as a “working version.”

PM Ciolacu came up with a populist rhetoric speaking of excessive labour taxation compared to capital taxation (imminent progressive taxation was mentioned as well).

At the same time, finance minister Bolos unveiled on a technical note tens of measures grouped on four levels, many of them more of “ethical principles” than law provisions. For example, public servants will no longer be allowed to spend more than RON 500 (EUR 100) per phone purchased and more than RON 50 (EUR 10) per monthly fee; what is spent over these levels will be paid by the respective public servants.

The corrective fiscal plan announced by the Romanian Government has two parts, pertaining to the budgetary sector (cutting unnecessary spending) and the private sector (increasing effective taxation, including by cutting tax loopholes), but neither of the two is straightforward as they face immense pressure that for time prevents the executive body from taking any steps.