Although the record budget deficit in the first quarter of the year, of 2.3% of GDP, was below the Government’s target of 3% of GDP estimated for Q1, the evolution of revenues and expenditures indicates a series of worrying phenomena, unforeseen by the government, such as:
companies’ profitability decrease, consumption slowdown, or even an increase in tax evasion, problems in absorbing European funds (including NRRP) and failure to comply with the investment plan. These aspects are highlighted by the mirroring of the quarterly revenue and expenditure targets, stipulated in the Budget, with the actual budget execution.
In terms of revenues, the most significant deviations from official targets were recorded in the case of corporate income tax, VAT and European funds. This suggests a potential decline in the profitability of Romanian companies, a worrying aspect for the economy in general and the budget in particular.
VAT problems may indicate a decline in consumption or an increase in evasion – extremely unfortunate considering that the digital solutions implemented by the tax administration should have led to a decrease in fraud.
Concerning European funds, absorption problems will affect the ambitious investment program on which the budget was based.
Basically, we are witnessing an unexpected change in the structure of revenues:
Altered and dangerous revenues’ structure
„During the analyzed period, general consolidated budget revenues were lower than the programmed level, mainly due to the failure to achieve the programmed revenues related to non-reimbursable external funds, including the NRRP.
„The revenues collected from domestic economy were slightly below the target level due to the evolution of value added tax collection,” explains the Ministry of Finance in the Report on Budget Execution for the first quarter of 2025.
Income tax revenues in the first quarter of 2025 totaled RON 1.55 billion, up 3.8% against Q1 2024, but RON 286 million below the Government’s program, reaching 84.5% of the target.
„In structure, both collection of corporate income tax from economic agents and that from corporate income tax transferred by commercial banks registered a decrease compared to the previous year by 0.2% and 26.4%, respectively, while the amounts redirected from profit tax decreased compared to the previous year by RON 0.2 billion,” according to the MPF report.
According to the latest NAFA data, the number of taxpayers paying corporate income tax increased significantly in 2025, by 25.5% compared to 2024, due to the migration from the microenterprise income tax.
Consequently, the level of corporate tax collection was 84.5% compared to the set target, being influenced by the failure to achieve the target set for both corporate tax from economic agents and corporate tax transferred by commercial banks. The revenues collected were RON 0.3 billion lower than the amounts on which the Government relied.
91.5% achievement rate of the VAT collection program
Value added tax revenues amounted to RON 28.6 billion in Q1 2025, recording a decrease in VAT revenues by 2.7% (RON -0.79 billion), compared to revenues for the first quarter of 2024 and a degree of achievement of the quarterly program of 91.5%. The state collected RON 2.66 billion less VAT than expected.
„The failure to complete the program was significantly influenced by the revenues for March,” the report states.
In structure, the VAT collected increased by 1.8% (RON +0.6 billion) against 2024, and the amount of value added tax refunds registered an advance of 21% (RON 1.4 billion). The very large difference between the two suggests that the state had accumulated arrears with the business environment in this regard.
„The quarterly average of VAT refunded was RON 2.8 billion, above the average recorded in the same period of 2024 of RON 2.3 billion,” the report also states.
The extremely low growth in VAT collected, of only 1.8% in Q1 compared to last year’s pace of 16.3% (increase in VAT collections in Q1 2024 against Q1 2023) suggests either a slowdown in consumption or evasion problems.
Moreover, the European Commission warned in its most recent report on the VAT gap (the difference between how much Romania should collect and the level achieved) that the digitalization of tax administration had limited effects in Romania, significantly lower than in other states in the region where similar measures were implemented.
The European funds disaster
The amounts received from the European Union (related to projects financed from both the 2007-2013 financial framework and the 2014-2020 financial framework, as well as the amounts related to the 2021-2027 European Union programming period, and those related to the non-reimbursable financial assistance allocated to the NRRP) collected in the first quarter of 2025 amounted to RON 9.2 billion (0.5% of GDP), corresponding to a degree of achievement of 35.1% of the quarterly program.
The failure to achieve the targeted revenues for the analyzed period is attributed to the „weak evolution of the amounts attracted related to both the non-reimbursable financial assistance allocated to the NRRP (35.7%) and of the non-reimbursable external funds related to all programming periods.”
„Savings” from yields and subsidies
With respect to expenditure, „savings” in yields stand out. Although these were over 60% higher than the level in Q1 2024, respectively RON 12.5 billion, they were RON 2.3 billion lower than the executive’s estimate.
Similarly, subsidy expenditure amounted to RON 3.2 billion, almost 40% lower than the forecast level for the first quarter. Compared to the same period of the previous year, subsidy expenditures decreased by 18.5% (RON -0.72 billion).
MFP data shows that the state paid very little to the energy consumption compensation scheme, the reduced expenses being a result of growing debts to producers.
„The expenses incurred represent subsidies for passenger transport, for supporting agricultural producers, as well as for the compensation scheme for the consumption of electricity and natural gas by non-household consumers (RON 0.455 billion), that is, 14.31% of total subsidies,” the report states.
Investments, the ‘whipping boy’ when it comes to cutting funds
Payments for projects financed by EU funds (including those financed from the non-reimbursable financial assistance related to the NRRP) amounted to 39.9%. In general, these payments have a neutral effect on the budget. In other words, if absorption is weak, payments for investments with European funds are reduced in turn. Capital expenditure, on the other hand, those investments financed exclusively from domestic public sources, were also below target, their adjustment often being used to balance the budget. The degree of implementation was 95.5%, with the state saving about RON 600 million.
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