Romania introduces strict measures to reduce the budget deficit

Prime Minister Ilie Bolojan announced on Wednesday, July 2, 2025, a comprehensive package of fiscal measures aimed at reducing Romania’s excessive budget deficit, currently among the highest in the European Union. In a press conference at the Victoria Palace, Bolojan stated that the measures are urgent and necessary to avoid a severe financial crisis similar to the one Greece experienced in 2009.

The key changes include an increase in the general VAT rate from 19% to 21%, starting August 1, 2025. The reduced VAT rate will be set at 11% and will apply to essential goods and services such as food, medicines, thermal energy, firewood, water for irrigation, and the HoReCa sector. Additionally, excise duties on alcohol, tobacco, and fuel will be raised by 10%.

Another sensitive measure is the freeze on public sector wages and pensions throughout 2026, along with the introduction of a health contribution for pensioners earning over 3,000 lei per month. Starting January 1, 2026, the dividend tax will rise from 10% to 16%, and gambling winnings will be subject to higher taxation. A new profit tax will also be imposed on banks.

Bolojan stressed that these actions are part of a three-stage plan, with the first stage being adopted through a government confidence vote in Parliament. He justified the urgency by pointing to the need to regain investor trust and to prevent Romania’s credit rating from being downgraded to “junk” status.

The Prime Minister also promised a second package by the end of July, focused on addressing systemic inequities and implementing structural reforms. These will include restructuring state-owned companies, revising special bonuses and allowances, and reorganizing the scholarship system for students, which has seen a major increase in recent years.