Romania's Coalition Government Enacts Radical Fiscal Reforms to Curb Deficit

Romania's government plans to implement tax hikes and cap public sector wages to reduce its large budget deficit. As elections loom, the deficit is expected to hit 8.6% of GDP. The government aims to bring the deficit below the EU limit by 2031 through strategic fiscal measures.

In a decisive move to address its growing budget crisis, Romania's newly formed coalition government is set to introduce a slew of tax hikes and spending cuts through an emergency decree. The measures aim to reduce what is currently the EU's highest budget deficit relative to GDP.

The government plans to raise the tax on company dividends and reduce tax exemptions for various industries, while also setting caps on public sector wages and pensions. These fiscal strategies are part of a broader plan to lower Romania's budget deficit from 8.6% of GDP in 2024 to below the EU ceiling of 3% within seven years.

Amid political turmoil, including annulled elections and far-right interference, international credit agencies have downgraded Romania's financial outlook. This new fiscal policy is seen as critical for stabilizing the country's economic and political climate.

(With inputs from agencies.)