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Romania's political upheaval impairs progress on tax revisions

Due to the provisional administration in Romania lacking the legal authority to sanction emergency decrees, the impositions of the anticipated tightened fiscal plan, mandated by the European Commission under the Excessive Procedure (EPD), cannot be enacted.

,   and  ASMedia
3 min read
The non-legally authorized interim government in Romania, following the resignation of PM Marcel...
The non-legally authorized interim government in Romania, following the resignation of PM Marcel Ciolacu, has no power to sanction emergency decrees, thus hindering the approved restrictive fiscal package, as required by the European Commission under the Excessive Procedure (EPD).

Romania's political upheaval impairs progress on tax revisions

Collapse of Romania's Fiscal Reforms and EC Negotiations: A Report

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In a tug-of-war over fiscal reforms, Romania's interim Government finds itself in a pickle. The Government, which took over post-Marcel Ciolacu's resignation, lacks the legal basis to endorse emergency ordinances, pinning the brakes on the restrictive fiscal package expected by the European Commission (EC). This no-go zone for emergency ordinances hampers the EC's intension to enforce fiscal reforms under the Excessive Deficit Procedure (EDP).

The stalemate has the potential to freeze the disbursement of cohesion funds and the funds under the Resilience Facility, according to trusted sources within the Romanian Government, as reported by Digi24.

Interim PM Cătălin Predoiu has set expectations that the minister of Investments and European Funds, Marcel Boloş, will meet EC officials in Brussels next week to discuss fiscal reform and the Resilience Facility. Boloş is expected to present an update post his Brussels visit, as per the interim PM Predoiu's promise, also reported by Digi24.

During the endorsement of the seven-year fiscal consolidation plan in November 2024, the EC requested a tax reform report from Romania, a pledge under the National Recovery and Resilience Plan (PNRR), by April 1, 2025. This report, inspired by the World Bank's suggestions under the PNRR, ought to present two tax reform scenarios covering all aspects of taxation and social contributions. The EC's edicts mandated the implementation of tax measures by April 2025, but its achievement is plagued by political uncertainty.

Marcel Boloș was slated to visit Brussels at the tail-end of this week to renegotiate the PNRR (including the tax reform report). However, at the behest of the Romanian Government, the discussions have been postponed due to the political uproar. The EC had demanded the final version of the PNRR by the beginning of this month.

The Romanian Government harbors hopes of negotiating a new deadline extension until a government with full powers is installed.

(Picture Source: Marian Vejcik/ Dreamstime)

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Insider Info:

  • The EC's clampdown on fiscal reforms stems from the interim Government's inability to issue emergency ordinances, hindering the passage of the restrictive fiscal package.
  • The EC could freeze cohesion funds and funds under the Resilience Facility as a consequence of the political impasse.
  • The European Commission asks the submission of a tax reform report, based on World Bank recommendations, and the finalization of the National Recovery and Resilience Plan (PNRR) by April 1, 2025.
  • The political crisis, initiated by the annulment of the December 2024 presidential election, threatens to derail fiscal reforms with some political actors gambling on populist schemes.
  • The EC's recommendations mandate the implementation of tax measures by April 2025 to align Romania's fiscal policy with its recovery and resilience objectives. Delays in fulfilling these commitments may lead to suspension of EU fund disbursements critical for Romania's recovery plans.
  1. The Romanian interim Government, lacking the legal basis to endorse emergency ordinances, has caused a standstill in the EC's intention to enforce fiscal reforms, particularly in light of Romania's Excessive Deficit Procedure (EDP).
  2. The stalemate over fiscal reforms poses a risk to the disbursement of cohesion funds and funds under the Resilience Facility, according to sources within the Romanian Government.
  3. Interim PM Cătălin Predoiu anticipates a meeting between Minister of Investments and European Funds, Marcel Boloş, and EC officials in Brussels next week to discuss fiscal reform and the Resilience Facility, as part of the implementation of policy-and-legislation related to Romania's recovery and resilience plans.
  4. In the future, Romania will need to submit a tax reform report to the European Commission by April 1, 2025, as part of their seven-year fiscal consolidation plan and the National Recovery and Resilience Plan (PNRR), inspired by World Bank suggestions.

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