The big budget correction will actually start in 2026, while package 1 only managed to put the deficit back on the reduction track agreed by the Romanian Government with the European Commission in 2024.
Economists from Romanian Economic Monitor, a group from Babeș-Bolyai University (UBB), analyzed the first package of measures, using data from the Ministry of Finance and the Fiscal Council, and they show how the burden of the 4% budget correction from the second part of 2025 and 2026, the part already legislated by package 1, is shared.
The fiscal measures on revenues adopted so far will bring RON 41 billion to the budget: RON 11 billion this year and RON 30 billion in 2026.
At the same time, the rest of the budget correction of 4% of GDP (a total of RON 80 billion of a nominal GDP of RON 2,000 billion in 2026, increased by inflation), carried out in the remaining months of 2025 and in 2026, will come from specific spending reductions and the freezing of large budget expenditures: salaries and bonuses of state workers and social assistance (mostly pensions).
How the burden of the 2026 fiscal correction is shared: -1.8% of GDP deficit reduction through new taxes and -1.6% through spending cuts and freezes
According to an analysis by the Romanian Economic Monitor, a group of economists from the Babes-Bolyai University (UBB), in order to bring the deficit within the European limit of 3% of GDP, the effective implementation of structural reforms from the Pach Package is needed, which aims to improve tax collection, limit evasion and the efficient functioning of the public sector (health, state companies, autonomous authorities – as well as the reform of local administration later on, now blocked in the coalition, possibly the sale of shares in profitable state companies).
‘What is the estimated impact of fiscal measures on Romania’s budget deficit? What should the role of Package 2 be? According to Fiscal Council estimates, the first package of measures could reduce the budget deficit to 8.04% of GDP by the end of 2025.
The same estimates show that in 2026 the impact would be even more visible, with a deficit level of 5.3% of GDP, although major rating agencies anticipate a level of over 6%. In order to bring the deficit below the threshold of 3% of GDP, additional measures are needed, along with structural reforms to improve tax collection and the efficient functioning of the public sector – this is the intention behind Package 2’, Romanian Economic Monitor analysts say in a post on Linkedin.
Economists analyzed the first package of measures, using data from the Ministry of Finance and the Fiscal Council, and they show how the burden of the 4% budget correction from the second part of 2025 and 2026, the part already legislated by package 1, is shared:
- by the private sector through increases in taxes: the tax on the turnover of banks doubled to 4%, keeping the minimum tax of 1% on turnover of companies that pay profit tax lower than 1% of the turnover in absolute amount, the increase in the tax on dividends and profits, etc.
- by the public sector by reducing bonuses and limiting vacation vouchers, education expenses, freezing state workers’ salaries (subsequently reducing positions by 10% in the public administration, unlegislated and project blocked by the Coalition)
- by consumers, pensioners and other beneficiaries of the social assistance system: increases in VAT and excise duties, social tax (CASS) on pensions of over RON 3,000, introduction of social tax (CASS) payment for previously exempt categories (including people on parental leave), increase in road tax and freezing of pensions.
Budgetary impact of each measure in Package 1. Reforms and measures in Package #2 will support the fiscal correction, with an estimated budgetary impact of RON 6.9 billion
The graph above shows the evolution of Romania’s budget deficit (% of GDP) in recent years and the estimate for 2025–2030. The dynamics of the deficit show that Romania has permanently remained with large deficits, well above the 3% threshold recommended by the European Commission. In 2024, the deficit was -8.65% (according to the European ESA methodology it was -9.3%), and for 2025 it is estimated at -8.04%.
The final target of Romania’s agreement with the European Commission is to bring the deficit to -3% of GDP by 2030.
For 2025, according to the integrated analysis of the Romanian Economic Monitor, the impact of the first package of fiscal measures is estimated at 0.61%, with a budget deficit exceeding the target by 1 percentage point (-8.04% versus -7.04%). In terms of revenues, the measures will add 0.51% of GDP to the budget.
The most money would come, by the end of 2025, from the change in VAT (+0.30% of GDP), with the second largest impact from excise duties (+0.08%), in addition to extra taxes on pensions over RON 3,000 (+0.07%) and the doubling of turnover tax of banks to 4% (+0.03%).
Another component is the reduction of expenses, which in 2025 will have an impact of only 0.10%, in particular through the reduction of budget increases (0.04%), the modification of medical leave allowances and exceptions to the payment of health insurance (0.04%).
The Big Correction of 2026
New tax increases are intended for 2026, with the impact of those set in 2025 still underway:
1. Additional revenues: 1.77% of GDP
- This includes additional revenues from increases in VAT (+0.9%), excise duties (+0.25%) and the increase in other taxes and duties: dividends (+0.20%), profit tax and stock exchange transactions, road and gambling taxes (+0.15%), taxation of banks’ turnover (+0.07%).
- In addition to these, supplementary measures have been taken concerning the business environment (such as limiting deductible expenses for multinationals) or increasing the degree of tax compliance.
2. Spending cuts (including through mere freezing): 1.58% of GDP
- This includes measures such as bonuses limitation (impact of 0.08%), cutting expenses in the education system (0.20%), modifying medical leave allowances and exceptions to the payment of health insurance (0.07%) and limitation of vacation vouchers (0.02%)
- Freezing state salaries (0.40%) and pensions (0.80%) from January 1, 2026 have the greatest impact in reducing budget expenditure as a percentage of GDP. The two categories of expenses are the largest in the Romanian budget (they cover 80% of tax revenues and insurance contributions that reach the budget) they cannot be cut substantially, but they can be frozen and thus reduced as a share of GDP, implicitly reducing the deficit in a calendar year.
Total deficit reduction in 2026: 3.35% of GDP
Consequently, the deficit would drop to -5.3% (estimation of the Fiscal Council). Rating agencies (S&P) estimate a higher level, of -6.4%, a sign that there is no confidence in the actual implementation of the measures.
The political decisions regarding the reform of the administration and the limitation of investment expenses by prioritizing the advanced ones and preserving the ones that have just started (or funding from other sources) will also have an impact in the process of reducing the budget deficit, but this process is burdened by the social tensions in society regarding the burden of adjustment and by political ones in the governing Coalition. Moreover, reform measures and revenue increases are still being discussed, as is the case with the VAT increase in the field of hospitality, where we could see an increase to the standard rate of 21%, from the current reduced rate of 11%, starting January 1, 2026, if tax revenues do not reach estimates.
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