Romania’s government has announced a wide-ranging set of tax reforms and spending control measures aimed at closing the country’s large budget gap and avoiding a potential financial crisis. The reforms were revealed on August 1, 2025, by Prime Minister Ilie Bolojan and Finance Minister Alexandru Nazare, after weeks of intense political discussions and pressure from the European Union to take quick action.
VAT Rate Increase to Generate Higher State Revenues
The government believes this will provide a significant boost to public revenue without putting too much strain on essential goods and services.
This reduced rate will apply to basic items such as food, medicines, firewood, books, water supply, and home heating. By keeping the reduced rate for essential goods, the government hopes to limit the burden on households while still increasing tax collection from non-essential sectors.
Health Insurance Contributions for Higher Pensions
In a move that has sparked debate, the government will now apply health insurance contributions to pensions that are higher than 3,000 RON per month. Officials argue that this step will create a fairer system in which wealthier pensioners also contribute to healthcare funding.
Starting in January 2026, the tax on dividends will increase from 10% to 16%, marking a substantial jump in capital income taxation.
Banks will also face a higher tax on gross profits, which will double from 2% to 4%. The government believes that the banking sector, which has benefited from stable earnings in recent years, should play a larger role in helping the country recover financially.
Reforming Special Pensions and Inefficient State Agencies
The government plans to reform special pensions, including early retirement schemes for certain professional groups such as judges and prosecutors, which critics say create inequality and place a heavy burden on the state budget.
The government also plans to restructure inefficient state-owned agencies, merging some institutions and eliminating overlapping responsibilities. Agencies like the Financial Supervisory Authority and the Energy Regulatory Authority will undergo governance changes to improve efficiency and accountability.
EU Pressure and the Risk of Losing Funds
President Nicușor Dan has warned that Romania has until the end of June to show a credible plan for reducing the deficit or it could lose access to billions of euros in EU funds. Losing these funds would harm infrastructure projects, education programs, and healthcare investments across the country.
The European Union is also concerned about Romania’s investment-grade credit rating. Without strong reforms, international credit agencies could downgrade Romania’s rating, making borrowing more expensive and further straining the budget.
The reform package is one of the most significant fiscal overhauls in recent Romanian history. By increasing taxes on VAT, excise goods, dividends, and bank profits, introducing health contributions for higher pensions, freezing wages, and restructuring inefficient state agencies, the government hopes to create a stronger, more stable economy.
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