Romania inks final fiscal adjustment draft while EC still ponders VAT rate hike

Romania's ruling coalition deferred for another week endorsing the final form of the fiscal adjustment plan, a combination of many small actions that displeased many while not guaranteeing a predictable result – but the European Commission reportedly seeks "much tougher steps" with the temporary VAT rate hike high on the agenda.

Finance minister Marcel Bolos (Liberal Party) admitted recently in an interview that the budget revision (likely in November) is a tough mission as the ruling coalition is unable to agree over, not to mention implement, the fiscal package quickly – which will result in a 6.8%-of-GDP deficit this year (2.4pp above target).

"They (the European Commission) said that our plan must be much tougher, be more substantial," said Bolos in an interview that contrasted the optimistic tone used by government officials recently.

Bolos also stated that he "is scared" of the budget revision because there's no consensus among the ruling coalition's members and mentioned the prospect of deep fiscal slippage this year because of lack of action.

"We'll find a way such as not to lose European funds [because of excessive deficit]," minister of European funds and former minister of finance Adrian Caciu (Social Democratic Party) said on an optimistic note more in line with the government's official rhetoric.

On September 14, the government failed to endorse the fiscal package and furthermore split it in two, with part of the measures still subject to debates in Parliament, according to Cursdeguvernare.ro. The measures included in the final draft of the fiscal package are those in public debate (including the controversial "fiscal adjustor" seen as a means to diminish fiscal optimisation).

The government's mild strategy is unlikely to convince the European Commission that the ruling coalition will implement politically costly measures during the electoral year 2024.

The European Commission approved the package of measures proposed by the government but requested additional measures to ensure the reduction of the deficit by increasing revenues. The most convenient option, in the short term, is the increase of the VAT, and it would represent a solution to the breakdown at this moment, according to Romanian MEP Dragoş Pâslaru, Ziarul Financiar