After outlining a reform-oriented agenda for the 2025-2028 period, Romania has begun taking decisive steps to stabilize its public finances, modernize the state, and improve the efficiency of public services. Last Thursday, Prime Minister Bolojan unveiled a set of fiscal measures aimed at narrowing the country’s budget deficit. These will be implemented in two stages – first on 1 August 2025, and then on 1 January 2026.
Romania ended 2024 with the highest budget deficit in the EU and the second-highest in the last three decades, at 9.3% of GDP – just shy of the 9.4% record set in 2010. Back then, delayed action led to a sharp VAT increase from 19% to 24% and a brutal 25% cut in public sector wages. Now, with the deficit reaching 3.4% of GDP in the first five months of 2025, similar to last year’s level, the government is under pressure to act decisively.
Despite President Dan urging the government to avoid VAT hikes, the widening gap between public revenue and expenditure has forced Romania to consider tough choices, as without reform, Romania risks sliding down a path reminiscent of Greece’s financial crisis.
To counter that trajectory, the standard VAT rate will rise from 19% to 21% starting next month. Meanwhile, reduced VAT rates (previously set at 5% and 9%) will be unified at 11%. This category includes essential goods and services such as food, water, medicines, books, culture, firewood, thermal energy, and the HoReC, which will be reassessed at the end of October for a possible transition to the standard 21% rate.
Moreover, the tax on bank profits will double from 2% to 4%, which is reportedly going to last only until the end of 2026. Excise duties on fuel, alcohol, tobacco, and sugary drinks will be increased, with a partial refund scheme under consideration for transport companies to cushion the blow of increased fuel prices. Additionally, a hike in the surcharge on gambling winnings is expected to generate 30% more revenue from that stream.
On the expenditure side, the government aims to enhance the efficiency of public spending. This includes reducing subsidies and eliminating loss-making operations in state-owned enterprises (SOEs), improving governance standards, and restructuring the national investment framework.
A key milestone in the country’s EU-funded National Recovery and Resilience Plan (PNRR) is expected by the end of July – reform of the special pension system. This step is critical for securing further EU funds and restoring long-term fiscal sustainability.
The reform agenda also targets self-financed public institutions, including ANAF (tax authority), ASF (financial supervisory authority), ANCOM (telecom regulator), and ANRE (energy regulator), with efforts to reduce their operating costs and streamline structures. A new health insurance contribution (CASS) will be applied to pensions exceeding 3,000 lei, but only on the excess amount, reflecting the imbalance of 6 million contributors supporting 16 million beneficiaries.
In addition, cascading public sector bonuses will be reviewed, while updates to royalty frameworks and state asset capitalization are expected within two weeks.
From the start of 2026, the dividend tax will increase from 10% to 16%. Public sector wages and pensions – after surging more than 20% and 30% respectively in 2024 – will be frozen. Property taxes based on market values will be introduced, and the streamlining of ministries and their decentralized bodies will continue. Ministries and SOEs will be tasked with cleaning up their budgets, cutting inefficiencies, and potentially trimming employees, though no figures have been disclosed yet.
Given the pressures of rising deficits, persistent inflation, slowing growth, and scrutiny from Brussels, Romania finds itself in a critical moment. While the reforms are seen as painful, they are necessary; the government’s renewed commitment to fiscal consolidation has been broadly welcomed. Though short-term growth may dip, the longer-term benefits (lower financing costs, improved investment sentiment, and eventual room for tax relief) are already being priced in. Equally important is compliance with EU conditions, ensuring continued access to EU funds. After a turbulent 2024 marked by political instability and economic contraction, the package marks a return to strategic discipline. If successfully implemented, these reforms may mark a turning point for Romania’s public finance trajectory.