Romania and the European Commission have reached a preliminary agreement on major reforms to include in the Eastern European nation’s recovery and resilience plan, including fiscal policy reforms that will increase budget revenues from taxes.
During a May 10-12 visit to Brussels, Minister of Finance Alexandru Nazare, Prime Minister Florin Cîțu, and Minister of Investments and European Projects Cristian Ghinea met with commission officials to secure €29 billion in grants and loans from the EU's €672.5 billion Recovery and Resilience Facility. The officials agreed on nine major reforms in fiscal policy, public administration, green transition, and justice, according to a May 13 release from the Ministry of Investments and European Projects.
"We had three major objectives for this visit: to clarify and agree on major reforms with the European Commission, to establish that Romania will ask for all €29 billion, including loans — at this time only Romania and Italy will access loans in the full amount — and determine the most advanced investment components and what is left to work on the others. We have achieved all three objectives,” said Ghinea in the release.
Commission officials, including Budget Commissioner Johannes Hahn, urged Romania to ratify the own resources decision that will enable the commission to borrow €750 billion on global markets to fund the EU's coronavirus recovery package, according to a May 13 Ministry of Finance release. Once approved by all 27 member states, the own resources decision will raise the own resources ceiling — the amount of resources member states may be called on annually to put toward EU expenditures — from 1.2 percent to 1.4 percent of the EU’s gross national income.
Romania’s national recovery and resilience plan, approved by the government April 7, proposes the allocation of €41.5 billion of Recovery and Resilience Facility and national funds toward “reforms that bring about structural change,” including pension, tax, civil service, public sector wage, and state-owned company reform. Romania has not yet submitted its national plan to the commission for approval.
The commission's European Semester country-specific recommendations for 2019 and 2020 say that Romania should strengthen compliance for tax obligations and collection, mostly through closing the VAT gap and fighting tax evasion. Romania’s 2018 VAT gap — the difference between expected VAT revenues and the amount actually collected — was the highest in the EU at 33.8 percent.
Romania's recovery and resilience plan says the country should focus on getting its budget deficit below 3 percent of GDP by 2024. It says Romania should modernize and digitalize the National Agency for Fiscal Administration to make tax collection more efficient and ensure a higher tax-to-GDP ratio, pointing to the newly implemented pre-completed tax declaration accessible through the agency’s Virtual Private Space.
Romania also plans to revise its fiscal framework for income and property taxes to eliminate the distortions and gaps in the system that allow taxpayers to minimize their income tax and social security contribution burden, according to the plan. The government will also simplify tax rules to ensure compliance and better administration.
As part of Romania’s efforts to promote carbon-free transport, the government will develop a framework of taxation and checkpoints to control carbon emissions, the plan says. This would include automatic weight measurement systems for border areas, integrated systems road control, and a tax or fee for polluting vehicles. About €8.5 billion would go toward transport investments, while €2.2 billion would go toward investments in digitalization and sustainability for the business environment.