Romanian lawmakers close to final vote on unexpected VAT rate cut

The VAT rate in Romania may be cut from 19% to 16% while the special VAT rate on food could go down from 9% to 5% starting next year, if the Chamber of Deputies adopts a bill in this sense initiated by the Liberals and now pushed by the Social Democrats, Ziarul Financiar reported.

The National Liberal Party (PNL), which formed a minority cabinet in early November after overthrowing the Social Democratic Party (PSD), will have to vote against its own bill provisioning a hefty 3 percentage points cut in the VAT rate or else it will put its own cabinet formed by PNL president Ludovic Orban in a very delicate position since the 3.6%-of-GDP public deficit target for 2020 is already constrictive and on the optimistic side.

The Social Democrats, who still hold a majority in the budget and finance expert committee in the Chamber of Deputies endorsed the bill drafted by the Liberals while in opposition, and the Chamber of Deputies will vote on the bill this week. The Senate has already approved the VAT rate cut.

If enforced, the VAT rate cut (including a deep cut in the special VAT rate for food, from 9% to 5%) would reduce the budget revenues with the equivalent of 1.1% of GDP, further straining public finances.

“The decision is a political one, but also with an economic dimension regarding the financial stability and will probably be a wise one,” said the first deputy governor of Romania’s National Bank (BNR), Florin Georgescu - once an influential Social Democrat leader.

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