Failed negotiations leave Romania's prospective Prime Minister's role still unclear.
In the current political scene of Romania, negotiations and discussions for the fiscal consolidation plan remain unresolved, with no concrete agreement on the horizon. The key concerns lie in both increasing revenue and cutting expenditure to bring down the fiscal deficit and maintain financial stability.
Kelemen Hunor, leading the Ministry of Finance in the caretaker government, has proposed several measures to support this plan. These include raising the dividend tax rate to match the corporate profit tax rate, bumping up the standard VAT rate by two percentage points and increasing the preferential VAT rate for items other than food and medicines. To reduce public spending, Hunor suggests eliminating certain bonuses paid to public servants and increasing the retirement age for magistrates by law.
However, Romania faces issues meeting EU expectations as the European Commission has criticized its failure to comply with the agreed national medium-term fiscal-structural plan, potentially leading to sanctions like the suspension of funds under the Cohesion and Resilience Facility. The Commission has called for the Economic and Financial Affairs (ECOFIN) Council to endorse this conclusion in their June 20 meeting.
The ruling coalition, made up of centrist, pro-European parties such as the Social Democratic Party (PSD), the National Liberal Party (PNL), and others, has a tough challenge ahead as they work towards drafting and implementing a viable fiscal consolidation plan. The intricate nature of public spending, together with legal hurdles, has made the initial deadlines ambitious.
President Nicușor Dan plays an active role in overseeing the government formation and fiscal planning. Meanwhile, the European Union's Economic and Financial Affairs Council and the European Commission closely observe Romania’s fiscal plans and press for adherence to agreed targets under the European Semester framework.
The ongoing negotiations are fraught with challenges, but the key players in Romania's political landscape, including the caretaker government's finance ministry (UDMR), the future ruling coalition (including PSD, PNL, UDMR, and others), President Nicușor Dan, and the European institutions, are working diligently to find a suitable solution.
In the ongoing discussions, the caretaker government's Finance Ministry, led by Kelemen Hunor, is proposing measures such as changing the dividend tax rate and increasing VAT rates as part of the policy-and-legislation for the fiscal consolidation plan. However, politics and general news indicate that Romania faces difficulties meeting EU expectations and complying with its agreed national plan, potentially leading to sanctions and the suspension of funds.
