Romania plans to cut non-interest current expenditures by 4.1% of GDP in seven years
<p>The government of Romania plans to cut the non-interest current expenditures to GDP ratio by 4.1 percentage points (pp) from 30.9% in 2024 to 26.8% in 2031, over the seven-year fiscal consolidation calendar submitted to the European Commission under the Excessive Deficit Procedure (EDP) published by <a href="https://cursdeguvernare.ro/cristian-grosu-plan-fiscal-guvern-termen-mediu-bizarerie-si-extaz-pentru-antreprenori-si-manageri.html?mc_cid=c14a30deff&amp;mc_eid=cd1f92f96c#google_vignette" rel="noopener" target="_blank">Cursdeguvernare.ro</a>.</p>

<p>This is a sizable slash envisaged for the public budget with an expected negative impact on the quality and availability of public services.</p>

<p>The social security (public pension system) and the payroll are likely to account for only 19% of GDP in 2031 from 21.8% in 2024. In contrast, the public debt service will increase to 3.5% of GDP from 2.0% in 2024.</p>

<p>The government pledges to cut the public deficit from 7.9% of GDP this year to 2.5% in 2031, implying a 5.4pp improvement (fiscal consolidation).</p>

<p>The current revenues will contribute only 1.5pp to the fiscal consolidation, rising from 29.6% in 2024 to 31.1% in 2031. The income tax revenues will make the strongest contribution, increasing from 2.8% of GDP to 4.0% of GDP (+1.2pp) – sharply, as of 2025.&nbsp;</p>

<p>The VAT collection (+0.7pp to 7.5% of GDP in 2031) will also contribute in two steps: 2026 and 2028. It is unclear whether this would come from better collection or following tax rate hikes/elimination of preferential VAT regimes.</p>

<p>In any case, the profit tax collection is planned to increase marginally, by 0.2pp to 2.2% of GDP, and this is probably expected to come from increased corporate profitability.</p>

<p>The transfers from the European Union’s budget are expected to decrease from 4.4% of GDP in 2024, when the inflows include Resilience Facility money, to 2.2% of GDP in 2031. Fewer money under the Cohesion Policy is expected as the country’s economy is converging to the EU average – but the Romanian government projects stronger expenditures under Cohesion Policy schemes (2.4% of GDP in 2031, +0.4pp compared to 2024).</p>

<p>On the public investment side, the phasing off of the Resilience Scheme will drag down the overall figure. However, the investments from the national budget will also decrease from 5.4% of GDP this year to 3.2% of GDP in 2031.</p>

<p><i>iulian@romania-insider.com</i></p>

<p><i>(Photo source: <a href="https://www.dreamstime.com" rel="noopener" target="_blank">Alexandru Marinescu/Dreamstime.com</a>)</i></p>