Romania’s Government Plans Tax Hikes and Spending Cuts to Tackle Deficit
Romania’s coalition government is set to implement tax increases and spending cuts to address its significant budget deficit ahead of elections.
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BUCHAREST: So, Romania’s new coalition government is gearing up to make some big changes. They’re planning to raise taxes and cut spending to tackle a hefty budget deficit. This is all happening through an emergency decree set for Monday.
With elections coming up in November and December, spending has really ramped up. It’s expected that Romania’s budget deficit could hit 8.6% of GDP next year. That’s way above the EU’s limit of 3%, so they’ve got to act fast.
The government had already sent a plan to Brussels to cut the deficit, but they didn’t lay out the specifics until now. The draft decree shows they’ll be raising the tax on company dividends from 8% to 10% starting in January 2025. Plus, they’re lowering the tax threshold for small businesses over the next couple of years.
They’re also getting rid of tax breaks for sectors like IT and agriculture, and reintroducing a tax on company-owned buildings. On top of that, public sector wages and pensions will be capped, and political parties will see their state funding slashed by 25% compared to this year.
To keep things in check, the government plans to create a new department focused on cutting public sector costs by at least 1% of economic output in 2025. The goal is to gradually reduce the deficit from 7% in 2025 down to 2.5% by 2031.
Things have been a bit chaotic lately, especially with the elections. A little-known far-right politician made waves by winning the first round of the presidential election, raising concerns about possible Russian interference. The top court even had to annul the election due to all the drama.
Credit rating agencies are already reacting to the situation, with Fitch changing Romania’s outlook to negative. They, along with Moody’s and S&P, have Romania at the lowest investment-grade ratings. It’s a tricky time for the country.