CONTEXT

• Romania has remaining economic problems from previous years, which are perpetuated in 2024, especially related to the receipts to the state budget and the large deficit, the difficulties being also caused by inflation and a series of factors that it does not fully control , such as the external ones related to the war in Ukraine.
• Economic growth has slowed not only in Romania, but also in other European countries, which are business and commercial partners, which has an effect on the economic situation. The year 2024 will be difficult for the world economy, and inflation will remain at a high level, even if a decrease is estimated in the second part of the year.
• According to the “Global Economic Outlook” report, published by the World Bank in January 2024, developing economies will register lower growth than the average of the last decade, with a forecast of 3.9%, more than one percentage point below the previously estimated level, and the estimates regarding Romania’s economic growth have been slightly revised down for the coming years.
• For Romania, the forecast for 2024 is 3.3%, reflecting a decrease of 0.8 percentage points and, respectively, 0.6 points compared to previous estimates, but remains among the highest in the EU.
• The perspectives for 2025 of the World Bank indicate an economic growth of 3.8% for Romania, also representing a decrease of 0.3 points compared to previous forecasts, being above the EU average.
• In the region, other countries have different estimates: Poland could register an increase of 2.6%, Bulgaria of 2.4%, Croatia of 2.7%, the Republic of Moldova of 4.2%, Serbia of 3% , and Russia by 1.3%.
• The European Commission estimated economic growth for Romania in 2024 of 3.1% of GDP and a budget deficit of 5.3% of GDP.
• The state budget of Guven Ciolacu foresees an economic growth of 3.4% for 2024, the second in the EU and a budget deficit of 86.6 billion lei for 2024, respectively 5% of GDP. Public investments would be around 7.2% of GDP, based on the attraction of EU funds and investments from the budget.
• The government is optimistic for 2024, but economists have divided opinions regarding Romania’s economic prospects in the short term, opining that the economy will grow moderately, but there will be budgetary problems, amplified by the election year. The President of the Fiscal Council, Daniel Daianu, points out that the GDP will grow less than the estimates and that the budget deficit could reach 6.4% of the GDP in 2024, because it is a busy election year, and the promises were very high.
• On the other hand, external analyzes show that Romania, together with Poland, has a remarkable economic growth potential, much higher than the western European economies, which have greater development constraints, but which are still much more stable . Thus, Romania, which was one of the poorest European countries, reduced the gap with its neighbors to become the second largest economy in the east of the continent, after Poland, according to international analysts. Moreover, Romania already surpasses Hungary in some economic indicators and some analyzes claim that it will reach Poland.
• However, the state budget needs higher effective revenues following social measures, but also to combat the effects of inflation and price increases in order not to increase the deficit, and the politicians from the governing coalition and the Government have introduced new taxes which will bring money to the budget, in parallel with the implementation of the PNRR and the increase of the budget amounts allocated to investments.
• The year 2024 came with higher fees and taxes for some categories of Romanians, entrepreneurs, employees or freelancers. Starting from January 1, 2024, the taxation regime of micro-enterprises and SMEs has changed, new levels have been introduced from which the taxation is higher. There was an increase in VAT for a number of products and services and an additional tax of 2% was imposed on banks, 1% on multinationals and 0.5% on oil and gas producers. In addition, property taxes increased with the rate of inflation and a luxury tax was introduced. VAT for the purchase of new homes and excise duties on a number of products also increased.
• The minimum wage for the economy increased from 3,000 lei to 3,300 lei gross, from January 1, 2024, and from July 1, it will be 3,700 lei. The salaries of employees in the public system increased by 5%. Pensions were indexed with the inflation rate of 13.8%, to be recalculated on September 1, before the elections.
• A major problem is the collection of taxes, especially VAT, where Romania is the European champion in bad collection and that is why there is more and more talk about stronger combating tax evasion and insisting on digitization. Taxpayers’ and companies’ relations with state institutions and the Tax Office are being digitized, with the new e-Invoice system becoming mandatory for companies from January 1, 2024, but the process is still slow and hampered by ambiguities and bureaucracy.
• The Prime Minister and the Minister of Finance promised that there will be no more tax increases in 2024, but some analysts argue that they will be in 2025, after the election year, in order to rebalance the budget and bring the budget deficit within 3%, according to EU requirements.

DISCUSSION TOPICS

• Macro perspectives for Romania’s economy – What are the specialists’ estimates for the main indicators?
• How can the rate of economic development be maintained and even increased?
• PNRR – the roadmap for the development and modernization of the economy. Measures to increase the absorption capacity. Boosting investments.
• The contribution of the private environment to economic growth. How big companies contribute, but also SMEs.
• The new fees and taxes valid from January 1, 2024. Assessment and what other changes are needed?
• Property tax
• The fiscal regime of micro-enterprises and SMEs
• Reform of local taxes
• Improving VAT collection. Digitization of the collection of fees and taxes. Implementation of E-invoice.
• Is a new Fiscal Code needed? Progressive tax or flat rate?

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