A government ordinance that downsizes the personnel and the personnel expenditures across the entire public administration at the central and local levels, but also decentralises and simplifies operations of the public administration and instates unified evaluation procedures for the public servants, was approved by the government of Romania on Tuesday, February 24, after months of negotiations among the members of the ruling coalition. Separately, an “economic relaunch” package including financial guarantee schemes, accelerated amortisation, allowances for reinvested earnings, and a milder regime for small firms, was also approved.

The endorsement of the two ordinances gives an important political message about the ruling coalition’s capacity to reach an agreement. The final form includes compromises and possibly loopholes for the incumbent local administration, but it is a significant step ahead in terms of budgetary impact and more rational use of the human and financial resources across the public administration.

Albeit under criticism for not operating a genuine reform of the local administration and maintaining the number of territorial administrative units (UATs – cities, towns and villages) at over 3,200, the ordinance approved by the government sets human resource procedures that rationalise the use of public money. The ordinance goes further, and prime minister Ilie Bolojan assured that it will result in better functioning of the public administration. 

The provisions of this ordinance should be enforced by July 1 this year.

The UATs that can not finance their personnel expenses – namely, all the 3,228 except for only 644 – will have to accept standardised income policies  (wage) decided at the central level.

The UATs will have to downsize their personnel in line with unified standards, which will result in overall personnel reductions of 10% or 12,794 current employees. Overall, the number of positions (including vacant) will be reduced by 30% across the local administration.  

The UATs that meet the limitations as specified by the standards imposed under the ordinance will not make personnel redundant – but there are only 731 such UATs. The UATs have the option to defer the personnel reduction until 2027, but they should reduce the personnel expenditures proportionally.

The public administration reform includes provisions that prompted heated debates – such as halving the bonus for PhD holders or the suspension of the driving permit for those failing to pay the speeding or other traffic-related fines.

The economic relaunch package was introduced at the request of the Social Democratic Party (PSD) but will be implemented by the Ministries of Finance and Economy – which are supervised by Liberal (PNL) ministers.

The views about the effects of the package are mixed. 

As new elements added to the initial scheme, finance minister Alexandru Nazare mentioned after the February 24 government meeting the hyper-accelerated amortisation for investments, tax credit for R&D spending, special regime for reinvested earnings, more permissive access to the VAT special payment regime (under which companies pay VAT to budget only when cashing the invoice), and a special instrument for investments of over RON 1 billion (EUR 200 million). 

The declared goal of the economic relaunch package is to stimulate local production in high-value-added industries and in sectors where Romania records a wide trade deficit.

iulian@romania-insider.com

(Photo source: Gov.ro)