The Romanian government, under Prime Minister Ilie Bolojan, has unveiled a sweeping fiscal austerity package targeting one of the largest budget deficits in the European Union. The emergency measures, to be adopted before the Ecofin Council summit, aim to restore economic stability and preserve the country’s access to EU funds.

Fiscal Context: A Deficit in Crisis

• Budget growth has surged from 459 billion lei in 2021 to 831 billion lei today—a 43 percent rise—while the deficit doubled from 6.7 percent to nearly 9.3 percent of GDP by 2024  .
• Public debt stands at approximately 58 percent of GDP, approaching 1.1 trillion lei; without corrective action, Romania could lose its investment-grade credit rating and access to cohesion funds  .
• EU Court pressure is mounting: Romania has been under the Excessive Deficit Procedure for over five years and must reduce its deficit to around 2.8 percent of GDP by 2030.

Core Austerity Measures: Revenue Boost & Spending Freeze

1. VAT System Overhaul

• The standard VAT rate will increase from 19 percent to 21 percent, while the reduced rate is consolidated to 11 percent, covering essentials like food, medicine, books, firewood, water and HoReCa services.

2. Higher Excise Duties

• Excise duties on alcohol, tobacco, and fuel will rise by 10 percent, adding roughly 1 billion lei in revenue this year.

3. Health Insurance Contributions (CASS)

• Pensions above 3,000 lei per month will now be subject to CASS; this measure is projected to raise 1.3 billion lei in 2025 and over 4 billion in 2026.

4. Banking and Capital Levies

• The banking tax temporarily increases from 2 to 4 percent, generating 400 million lei in 2025 and 1.8 billion in 2026.
• Dividend taxation will also rise from 10 to 16 percent starting January.

5. Gambling Taxation

• A 30 percent increase in gambling licence fees and a 10 percent tax on winnings under 10,000 lei are planned.

6. Public Sector Freeze

• Salaries and pensions in the public sector will remain frozen through the end of 2026.
• Discussions include reducing public employment by up to 20 percent (~167,000 positions), cutting bonuses and allowances.

7. Education and Merit Scholarships Reform

• Teachers’ workloads will increase by two hours weekly without extra pay.
• Merit scholarships will be limited to the top 15 percent of pupils. Social and vocational scholarships will be better targeted.

8. Institutional & Governance Enhancements

• Annual economic performance reports by the Prime Minister and Finance Minister to Parliament.
• Clear economic impact analysis required in future budget proposals to ensure accountability.

Financial Expectations & Timeline

• Short-term gains: 9.5 billion lei in revenue added and 1.2 billion lei in savings during 2025.
• Medium-term projection: an additional 35 billion lei revenue and 57 billion lei in savings by 2026.
• The government intends to finalise public consultations this week and formally adopt the measures next week, ahead of the Ecofin meeting.

Risks and Reception

• Public backlash is growing: civil servants have already protested proposed job and benefit cuts ().
• Market reaction: initial bond auctions showed positive response, but pressure mounts to avoid credit rating downgrades ().
• Political impact: comparisons drawn with previous austerity in 2010‑2012. A major protest movement then resulted from tax hikes and public wage cuts.

Romania’s government appears caught between necessity and risk. The package is wide-ranging and severe, but deliberately structured to preserve essential services for vulnerable populations while signalling fiscal responsibility to EU partners and markets.

Whether Bolojan’s administration can implement reforms swiftly enough, without triggering economic contraction or widespread unrest, remains pivotal. The coming months will test the durability of Romania’s fiscal trajectory and its political resilience.