Sources Confirm Agreement on Tax Package by PSD-PNL coalition leaders

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The leaders of the PSD-PNL coalition decided in Monday’s meeting on the main fiscal measures to cover the budget deficit, political sources told G4Media. The measures will be introduced by emergency ordinance and will apply in two stages: some from 1 October, others from 1 January 2024.

The fiscal package is intended to cover an additional budget gap above the budget deficit of 4.4% of GDP assumed in the budget law. Officially, the additional budget deficit was 9 billion lei in the first five months of the year alone, i.e. the difference between ANAF’s collection programme and actual collections. Political leaders in the coalition, however, spoke of an additional deficit of 20 billion lei in the first half of the year.

The decisions were taken at a meeting on Monday attended by Marcel Ciolacu, Nicolae Ciucă, Marcel Boloș (finance minister), Adrian Câciu (minister for investment and European projects) and other PSD and PNL leaders.

Expenses cuts assumed by the PSD-PNL coalition:

• Abolishing around 200,000 unfilled state positions. Savings will come from eliminating the budget allocation for these positions, the natural disappearance of some lower-level management positions, and the discontinuation of expenses related to furniture, official cars, phones, etc.
• Giving up some state guarantees for state-owned companies.
• Cutting back on certain minor expenses in ministries.

The coalition did not commit to a reform of the central and local public administration in the midst of a pre-election year.

Tax and levy increases (revenue to the budget):

• Removal of the 5% VAT rate, currently applied to certain products and services such as textbooks, publications, hotel services, and houses with areas smaller than 120 sqm. These will be subject to a 9% tax rate.
• Retaining only two VAT rates: 19% for most goods and services, and 9% for food, animal feed, medicines, and medical devices. It is not clear at this moment whether the VAT rate for restaurant food will remain at 9% or increase to 19%.
• Construction and agriculture workers will pay health contributions, equivalent to 10% of their gross income. They were previously exempt from this contribution.
• The income tax exemption for IT employees will only apply to incomes below a certain threshold, yet to be determined. Incomes exceeding that threshold will be taxed at 10%.
• Introduction of a new 1% tax on residential buildings that cumulatively exceed the value of 500,000 euros.
• Micro-enterprises will be taxed at 1% of their turnover if the turnover is below a certain threshold (currently around 300,000 euros, but subject to possible changes) and 3% for turnover between this threshold and the current ceiling of 500,000 euros.
• Excise Tax Hikes on Tobacco and Alcohol

The final decision on the fiscal package is expected to be made this week, during a new coalition leaders’ meeting, and then adopted by the government through an emergency ordinance.

Context: G4Media reported as early as July 12 that the government is preparing a package of tax and levy increases. Among the measures being considered are a 1% tax on residential buildings that cumulatively exceed 500,000 euros, an increase in the dividend tax, a rise in the minimum wage, and a 10% higher tax on gambling and tobacco.

The PSD-PNL coalition is currently negotiating a mega-package of fiscal measures, tax and levy increases, which are set to be implemented either from August 1st or September 1st, aiming to cover a budgetary shortfall of several billion lei and to meet the deficit target negotiated with the European Commission.

According to G4Media sources, PSD and PNL are struggling to agree on the proposals, as each party seeks to protect its own electorate. „If adopted together, it will be a severe blow to the middle class and the business environment,” liberal sources stated for G4Media.ro.