Romania is facing a severe financial crisis, with the government warning it risks running out of funds to cover pensions and salaries. Prime Minister Ilie Bolojan described the situation as critical, stating that without immediate and stringent action, the country could slide into a harsh recession.

The government is urgently seeking ways to increase its budget revenues while cutting expenditures. According to Bolojan, Romania currently spends 132 lei for every 100 lei it collects in taxes, borrowing the extra 32 lei. This unsustainable trend threatens to push the state toward insolvency, risking the loss of trust from lenders and an inability to finance basic obligations like salaries and pensions.

To address the crisis, a series of tough fiscal measures are being proposed. From August 1, the standard VAT rate will rise from 19% to 21%, while the current reduced VAT rates of 5% and 9% will be eliminated and replaced with a single 11% rate, applicable only to specific items including food, medicines, books, firewood, irrigation water, and hotel services.

Excise duties on fuel, alcohol, tobacco, and sugar products will also be increased by 10%. Additionally, a 4% turnover tax will be levied on banks starting in August.

Pensioners with monthly incomes above 3,000 lei (approximately 593 euros) will face a 10% health insurance contribution on amounts exceeding that threshold.

Further tax hikes are planned for January 1 of next year. The dividend tax is set to increase from 10% to 16%, while property taxes on homes and land will double. The road tax could rise from 28 euros to around 50 euros. Additional revenue is also expected from updated royalties.

Together, these tax adjustments are expected to generate more than 10 billion lei in additional revenue this year, and around 33 billion lei in 2026.

Beyond tax increases, the government plans to implement state spending cuts to bolster the budget.

The first package of these measures is scheduled for government approval by August 1, with the aim of presenting them to parliament shortly afterward. This timing is crucial, as on July 8, European Union finance ministers will convene for an important meeting where Romania’s financial situation will be discussed.

Romania’s primary objectives with these reforms are to avoid suspension of EU funds due to its large budget deficit and to prevent a downgrade of its credit rating by international agencies. The government is under pressure to demonstrate fiscal responsibility and restore confidence amid this precarious financial climate.