Romania's Economic Balancing Act: Tax Cuts and Wage Hikes Amid Deficit Challenges

Romania's coalition government plans to raise the minimum wage while cutting business taxes to mitigate the economic burden. These measures aim to manage the EU's largest budget deficit and maintain investment ratings. Yet, internal disagreements have delayed the budget plan for 2026 amid high inflation.

Romania's coalition government is set to increase the monthly gross minimum wage by 6.8% to 4,325 lei in a move to ease the economic strain on workers. Concurrently, the government will cut a 1% minimum tax on company turnover in half from January. Despite efforts to mend EU's largest budget deficit, policies have been met with internal strife.

In an effort to maintain its investment grade rating, the government has raised taxes and frozen public sector wages and pensions. The four-party coalition continues to experience disagreements, delaying the 2026 budget plan. Moreover, the August VAT hike has negatively impacted demand, pushing inflation towards double-digit figures.

Efforts to cut public spending include a 10% reduction in central administration costs, political party subsidies, and lawmakers' income. These fiscal strategies aim to reduce the budget deficit from over 9% in 2024 to about 6% next year. The coalition government has notably survived six no-confidence votes since July, showcasing its determination to address Romania's economic challenges.

(With inputs from agencies.)