Romania, EC have no agreement yet on fiscal consolidation strategy

The European Commission has reportedly rejected, as unrealistic, the fiscal consolidation plan submitted by the Government of Romania and would instead prefer a strategy with more predictable results, Ziarul Financiar announced on September 1.

The measures proposed by the Government and published by Economedia.ro are a combination of lower expenditures (with an impact of 0.64% of GDP) and higher taxes (1.65% of GDP).

Romania’s public deficit heads towards 6.84% of GDP this year unless corrective steps are taken, more than 2.4% of GDP above the 4.4%-of-GDP target, according to the Government’s own estimates.

Among the main measures envisaged by the Government for boosting the tax revenues, the profit tax will be levied on an “adjusted” rather than accounting profit, fewer SMEs will qualify for preferential revenue taxation, some tax allowances in IT and other sectors will be phased out, and some preferential VAT rates will be hiked. A special property tax on expensive cars and real estate properties held by natural persons will be levied as well.

Prime Minister Marcel Ciolacu specifically stressed that Romania doesn’t agree with hiking the regular VAT rate (currently at 19%), among others, because this would fuel inflation (by 0.5pp for a 1pp VAT hike) and dampen growth, Economica.net reported.

The EC has not specifically mentioned the regular VAT rate, but the negotiations leave little room for other options, according to Ziarul Financiar. The talks between Romania’s Government and the European Commission will continue this week in Brussels.

Romania has been under excessive deficit procedure since before the COVID-19 crisis when the EC temporarily suspended the fiscal discipline requirements.

(Photo source: Vinnstock/Dreamstime.com)