Economist: Fiscal tightening can lead Romania to a real economic crisis. What are the alternatives

At a time when Romania is experiencing more and more intense budget pressures, and the discussions on increasing taxes are increasingly large, the business environment draws an alarm signal, warning that fiscal tightening can lead to a real economic crisis.

The business environment warns that fiscal tightening can lead Romania to a real economic crisis

“Traditional tax solutions It could have the opposite effect of the desired one, transforming the current challenge into a real economic crisis ”warns Iulian Lolea, economist Concordia.

Concordia Patronal Confederation, a national representative social partner, wants the future governance to find the most suitable solutions for balancing public finances, solutions that ensure the economic prosperity of Romania, but especially of Romanians.

The economist emphasizes that in order to achieve this objective it is necessary for the political decision makers to focus on two inevitable aspects: the revenues and expenses to the state budget.

“In the present situation, both on the area of ​​income and on the expense area, the discussions are worrying. There are numerous voices that bring arguments in favor of increasing taxes or at least in the direction of not being able to bypass this scenario. But we see other solutions, taking into account that we come after two years of taxation, etc.”, etc.states the economist, listing the solutions considered viable by the business environment, which we present below:

VAT: The problem is not the share, but the collection

Romania has the highest annual VAT collection deficit (over 30%) of EU countries if about 1 in 3 lei does not collect, what real effect could VAT increase? None.

In this sense, if the collection were improved and we managed to combat tax evasion, the problem of deficit to approved targets would be solved for the next two years. Therefore, it is a problem of efficiency of the authorities.

Then, the reforms needed to unlock the tons of PNRR and for reaching the following milestones (they are in good percentage, as income) must be implemented.

The Romanian economy has continually slowed down in the last two years, and the first quarter of 2025 has brought a negative surprise: a stagnation compared to the previous quarter of 2024. Measures to stimulate the economy are required. There is a high risk that a tightening of the fiscal regime will bring economic decrease, and the effect on the public budget will be below expectations, the income increases are not sufficient.

According to a study conducted by ASE and Concordia, the increase of VAT or income tax can lead to a reduction in the rate of real GDP, with values ​​between 0.2 percentage points and 0.8 percentage points. The most harmful is the increase of income tax, this measure also generating a strong negative psychological impact.

Alternative: efficiency and optimization

We strongly believe in the need to make the activity of the state and to optimize public spending. Some of the measures that can lead to the restoration of the economic balance:

• The correct dimensioning and efficiency of the apparatus from local and central public administrations, state agencies and other public institutions, with numerous evidence that there is efficiency problems.

• Thorough evaluation and an audit of the expenses from the Anghel Saligny program, which will lead to the elimination of those inefficient investments.

• Increasing the confidence of the Romanian state in the international markets to reduce the interest expenses (they risk exceeding 2.5% of GDP, in 2025) – this, if they were solved, we can save 0.5% of GDP, for future funding

• elimination of unjustified bonuses for different categories of budget.

• concession of infrastructure elements (the expenses with maintenance would decrease and increase the state income).

“Romania is at the crossroads. It can choose the easy but dangerous way to increase taxes, with the risk of maintaining economic instability, or it can opt for the necessary structural reforms, which, although more difficult, is the only sustainable path to the budget balance and economic prosperity. The time for brave decisions is running out quickly and the cost of inaction could be one that Romania can no longer afford it“concludes the economist.