Although they have the necessary infrastructure for development just like large municipalities in Romania, cities/towns that are not county capitals are in a dark continuous depression:
we all know that life in Mizil or Țăndărei is harder than in many rural localities, but the altering of figures, the outlook created by the directions from which one views development and, especially, the sources of livelihood and investment create a much bleaker picture than the one we see when driving through these settlements called cities/towns.
So, let’s see what the ‘numbers’ tell us about urban Romania:
- These urban localities have one employee in the public sector for every 2.5 employees in the private sector, and the total number of employees in urban localities that are not county capitals is lower than that in communes.
- Many of the towns that are not county seat municipalities are poorer than many of the communes, because they no longer own production units or agricultural areas.
- Poverty is also determined by the way the budget of these localities is structured, which, lacking employees and tax-paying companies, does not benefit from significant resources from the Ministry of Finance allocations.
- The number of VAT-paying companies in these urban localities is about 60,000, and only 20,000 have revenues of over RON 1 million.
- The increase in property taxes brings an annual surplus of over RON 1 million to a city with a minimum of 6,000 inhabitants, but this amount does not support the development of these towns.
- Representative associations demand that budget allocations from VAT and income tax be increased for towns, as well as the launch of special investment programs for urban areas that are not county seat municipalities.
In Romania, there are 216 cities/towns – localities that, according to administrative legislation, have over 5,000 inhabitants, as well as schools and high schools that contribute to acquiring the status of “towns”. However, these are not county seat municipalities.
For the last 12 years, these areas have been the main pole of poverty, along with the abandoned communes in Romania. According to an analysis by the Ministry of Development in 2023, for every poor person in Bucharest, there were at least 10 in these localities.
„The share of the population living in marginalized census sectors is over ten times higher in very small towns (< 10,000 inhabitants), compared to Bucharest,” the document stated.
According to Eurostat, a person is considered poor or “at risk of poverty” if their equivalent disposable income (after taxes and social transfers) is below 60% of the national median income.
Data from the Association of Romanian Cities suggests that the ratio has doubled at present, and the gap will continue to grow.
Case study: the budget of little Făurei
The reason? Small towns have no chance to develop, as long as municipalities and Bucharest „steal” labor and companies.
The budget of these towns is made up of local taxes (on construction and property) and allocations from the state budget (VAT shares and income tax paid by residents).
Specifically, a city like Făurei, in Brăila County, with a population of 3,008 inhabitants, at the 2021 census.
Leaving aside the fact that, based on the Administrative Code, Făurei should not be a town – because it does not have 5,000 inhabitants – the budget of this city is formed from:
- Local taxes
A non-seat municipality collects, local taxes of a maximum of RON 650,000 per thousand inhabitants, according to an estimate by Curs de Guvernare, which takes into account the collection of these taxes in localities. It follows that Făurei collects a maximum of RON 2 million per year in local taxes.
- VAT allocations from the Ministry of Finance
The minimum allocated VAT share per inhabitant in non-seat municipalities is approximately RON 1,000 – 1,300/inhabitant/year (depending on the county).
Consequently, Făurei adds RON 4 million to the local budget. This is on paper, because in reality, there are only 38 VAT-paying companies in Făurei, of which only 8 have businesses of over RON 1 million.
Therefore, the forecast is an allocation of RON 440,000 to the city budget for 2025.
- Income tax allocated by the Ministry of Finance
Făurei receives from the state budget at least 63% of the income tax paid by taxpayers residing in the town. However, the town has only 107 employees in the private sector and another 50 in the public sector, employed by the city hall.
With an average gross wage of RON 6,600 in Brăila County, Făurei does not receive more than RON 1 million from the income tax of its own employees.
Therefore, the city’s definite budget is RON 7 million.
The salary budget for the 50 state employees is RON 4 million.
RON 3 million remain, with which utilities, social assistance and city development must be paid.
A town’s budget is conditioned by employees and businesses
The revenues of a town, like any other locality in Romania, consist of money from the state budget and amounts collected for the local budget.
- Allocations from the state budget
Income tax – distribution:
According to the Fiscal Code and the legislation on local public finances, the local authority directly receives 63% of the income tax generated by residents.
The rest is distributed as follows: 14% – to the county budget, 23% – through a balancing formula (distributed through the County Council or the Ministry of Finance).
VAT – amount broken down by county /ATU (allocation by balancing):
VAT is not collected locally, but is distributed from the state budget through a balancing mechanism.
In small and medium-sized urban localities, the amount received varies per capita, also depending on the fiscal capacity of the administrative-territorial unit (own income per capita).
In localities with low fiscal capacity, the difference up to the thresholds is covered from VAT through balancing allocations.
Towns are out of employees
The total number of employees in Romania (according to 2024 data) was 5,746,452 people.
According to calculations made by Curs de Guvernare, based on reports from the NIS, the Ministry of Labor and the 2021 census, the number of employees in the county seat municipalities + Bucharest is estimated at 3,237,223 people.
The percentage of employees in the county seat municipalities (plus Bucharest) of the total number of employees in Romania is approximately 56.33%. There are also counties, such as Cluj, where the percentage of employees in the seat municipality, Cluj-Napoca, exceeds 65%.
Consequently, the estimated number of employees outside the county seat municipalities and Bucharest is approximately 2,509,228 people.
Of this category, approximately 828,000 – 850,000 employees work in other urban localities, cities that are not county capitals, according to NIS data on the distribution of the urban population.
This estimate is consistent with the population structure and economic distribution, where:
- Approximately 60% of the population lives in urban areas.
- Between 200,000 and 250,000 employees in small and medium-sized towns (non-seat municipalities) work in the public sector – city hall officials, teachers, medical staff, local police, local public services, etc.
- 656,000 employees were working in private companies in 2023.
Private companies abandon non-seat municipalities
VAT collection in cities that are county seat municipalities is the lowest in Romania.
420,405 companies are present in the Trade Register in these localities. However, only 139,576 companies were active, with a balance sheet filed for 2023, and 60,000 are VAT payers. Only 20,000 companies had revenues of over RON 1 million.
Most companies are in urban areas in counties: Timiș (3,114), Argeș (4,556), Ilfov (22,609), Constanța (7,010), Cluj (6,106), Iași (1,531), Suceava (4,881), Sibiu (3,874), Hunedoara (6,593) and Brașov (6,523).
The counties with non-seat urban areas where private companies are almost absent are: Dolj (391), Brăila (349), Giurgiu (492).
On the other hand, when it comes to the number of employees, Ilfov (150,000) ranks first, followed by Cluj (30,000), Alba (33,000), Prahova (50,000), Brașov (38,000), Argeș (40,000).
Dolj (4,900), Brăila (1,600), Tulcea (3,800), Mehedinți (2,000) have the lowest numbers. Data on the private sector in these areas are collected using the Termene.ro platform.
Towns survive thanks to foreign investment
These urban areas are supported by foreign investment rather than national programs.
The largest private investments: Germany (RON 25.3 billion), France (29.9 billion), the Netherlands (28.2 billion), Austria (12.2 billion), Italy (7.88 billion).
Turkey, the United Kingdom, Spain, Poland and China have invested between RON 1 and 2 billion.
The net turnover of companies in non-seat municipalities was RON 338 billion in 2023 (compared to 166 billion in 2014). Net profit – RON 29.7 billion in 2023 (compared to 9.9 billion a decade ago).
Frequent areas of activity in non-seat towns:
- 7,677 companies – Construction works
- 7,644 companies – Food retail trade
- 7,482 companies – Road freight transport
- 3,475 companies – Restaurants
- 3,447 companies – Vehicles maintenance/repairs
The solution: a national development program
Association of Romanian Cities (AOR) representatives say that these localities have been kept in poverty for several years, through the way the annual budget is drawn up.
“The local budgets of towns will continue to suffer, making their proper functioning uncertain and depriving us of the chance for local development,” said Adrian Teban, mayor of Cugir, Alba County.
Over a third of Romania’s population (more than 7 million citizens) benefit from public services organized, financed/co-financed and managed by these towns – including the inhabitants of neighboring communes. AOR has been advocating the need for a national development program for these urban areas for several years.
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