Nicușor Dan is looking for 30 billion lei. What would mean an increase in 2 percentage points of VAT. How much money would the government gather and what are the dangers / version of Isarescu

In the election campaign, Nicușor Dan promised that VAT would not grow. He gave in writing, on his own. Now, the president chosen says that VAT will not increase the basic products. What amounts do we talk about?

• In 2024, Romania managed to gather 18 billion lei more to the budget compared to 2023, as an effect of digitization and some adjustments.
• Government economists bet on a similar growth in 2025. Without VAT increase. But the first months of 2025 does not confirm the same “extra step” when collecting taxes.

The increase of VAT with two percentage points was discussed since the summer of 2024, but the authorities have constantly denied that they are considering this. Obviously, in full election year, tax increases could not be discussed, but now the elections are over, and the need for money to the budget is stringent. But the accounts in the offices may not match those in real life. As has often happened in recent years.

“We should find about the expenses about 30 billion lei,” said the president elected.

VAT is a tax, not a tax

Usually, when VAT increases (so the prices and cost of life increase), any healthy man thinks how to protect himself against these increases. And does it by reducing its consumption (buys only what is strictly-necessary). As options, it will prefer cheaper things in the same product category, and in the end, the tax collected is less than if they left things in their place.

In the past I note that the value added tax is not even a tax. It's a tax. The difference is that, in the case of taxes, you receive a good or service (passport tax, stamp duty, etc.), while taxes are mandatory for everyone.

Florian Libocor, the chief economist of the BRD, explains at a conference that in Romania the level of taxes is not the problem, but that we are not able to collect the money due to the state. In other words, no matter how big or small the taxes were, we collect the same (stupid).

Florian Libocor: “Regardless of the size of the taxes, we also collected 33%-34%”

“It is not a thing to enjoy you when the taxes increase, but without that it is not. But it must be taken into account that, regardless of the situation in which Romania was- with progressive, deficit taxes, with a lower or higher VAT level- it has not collected more than 33%- 34% budget revenues equivalent to GDP. In conclusion, it does not matter. Libocor.

But for politicians, the most handy measure and which produces immediate effect is VAT growth. Only such a measure is extremely unpopular and has, including economically, its shortcomings.

9 Possible effects of VAT growth

VAT enlargement It is transmitted in prices in a proportion of 75% and this is because the peasant market is largely unnatural, said the governor of BNR Mugur Isarescu to the previous increase of VAT to 24%.

Asked, in a press conference a few days ago, what would happen if VAT would increase to 20 or 21%, Isarescu replied directly: VAT increase has an inflationary impact. He goes in prices.

Higher prices and increase in the cost of life: This is the most direct and immediate effect. As the VAT applies to most goods and services, an increase in the share means that the final prices that consumers pay will increase. This directly increases the cost of life, forcing consumers to spend more to maintain their current standard of living.

Low purchase power: With the increase of prices, the real value of consumers salaries decreases. This means that they can buy fewer goods and services than before.

Stronger impact on those with low income: Those with low incomes tend to spend a greater proportion of their income on goods and services subject to VAT. Therefore, an increase in VAT deepens the inequality of income.

Reduced confidence: Increased financial pressure and uncertainty can lead to habits of more prudent expenses, which could slow down economic growth.

Higher costs for businesses: Companies that purchase goods or services (raw materials, services for enterprises, imported goods) will pay a higher VAT for these expenses, which increases their operational costs.

In order to maintain their profitability, companies often transfer VAT to increase consumers by increasing sale prices. If they choose to absorb the increase of VAT to remain competitive, their profit margins will decrease. This can be particularly difficult for business that already operates with small margins.

The risk of low sales requests and volumes: As consumers' expenses fall due to higher prices, companies can record lower sales volumes, which can directly affect their income and profitability.

Reduced economic growth: Decreasing consumption expenses and reducing economic activity can slow down general economic growth. Enterprises can postpone investment decisions and employment plans due to unclear tax policies and reduced demand.

Government revenues declining: Although the main objective of VAT growth is to increase government revenues, the actual result can be complex. If the growth significantly reduces consumption expenses and commercial activity, the expected revenues may not be at the level of expectations or even decrease in the long term due to a declining tax base.

In 2024 we collected 15% more than in 2023

In 2024, Romania collected at the state budget 121 billion lei from VAT, the budget execution published by Finance. This represented an increase of about 15% compared to the year 2023, due to a combination of factors: improvement of collection, ANAF digitization and adjusting certain quotas.

VAT was thus the most important source of fiscal income, funding essential expenses in areas such as health, education and social protection.

Assuming that the tendency to grow is maintained in 2025, and the VAT collection climbs by at least 15%, it would reach revenues of about 138 billion lei. This would mean 18 billion lei in addition to 2024, according to terms.ro.

It is a significant amount, but still insufficient to cover the entire estimated budget.

The first months of 2025 does not show an increase in receipts

The above estimate, with the plus of 18 billion lei, is based exclusively on improving the collection, without taking into account the modification of the quotas. However, after the first three months of 2025, the VAT collection did not record the desired increases, so the additional 18 billion threshold may not be reached.

Isarescu also warned that the reduction of public spending is of a recessionary nature: “This reduction is not without effects. Many of the essential expenses of the Romanian state – health, education – are underfinite for years, are not superficial. We also have military expenses, which will hardly decrease!”

According to him, there are solutions to avoid austerity, “this word that scares”, as he classified. In the opinion of the central bank, the solution is to squeeze the belt gradually, to install a “diet program”, which means to reduce the deficit gradually, not brutal, but by 0.7-1 percent annual point, that is to be under economic growth. “But for this you have to ensure an economic growth of 2-3%!”, Says Isarescu.

Impact of a VAT increase by 2 percentage points

If the new odds were: 21%, 11%and 7%, and the receipts are evenly distributed during the year, and for the last six months of the year would apply the new values, the Economica.net calculations show that such a measure would bring about 6.3 billion lei to the state budget by the end of 2025.

In total, adding to the 18 billion possible, but for the time being, in total ANAF to collect 24 billion lei from the better VAT collection and from July increase of quotas by 2%.