Ilie Bolojan: No government will be able to avoid tax increases

The interim president of the PNL, Ilie Bolojan, declared on Friday, in a press conference dedicated to the budget crisis and the negotiations for the future government, that those who “promise magical solutions are false prophets”. He said that “unpopular but necessary” corrective measures must be taken, and for this, parliamentary support is needed. Bolojan said that he expects these discussions with the other parties to be concluded next week, so that there is support for this package of measures.   The future government will have to take corrective measures, most of which are unpopular but necessary, said the interim president of the PNL, Ilie Bolojan, in a press conference at the Senate. Revenues must also be increased, and this will not be possible without tax increases, he added.  Bolojan’s statement: “We are in a complicated situation. As a country, we have a very large budget deficit—meaning the gap between the revenues we collect and the expenditures is the largest in Europe. Last year, the budget deficit was 9.3% of GDP. This has been accumulating over several years. There is significant pressure on borrowing and interest payments.   Every year, the revenue column is much smaller than the expenditure column. Last year, we spent 152 billion lei more than our total revenues of 575 billion lei, with the difference covered by loans contracted by Romania. In previous years, we also spent significantly more, but last year’s difference was the largest—over 30 billion euros.   Every year we’ve had to cover the debt, and unfortunately, in the coming years, we will not be able to stop borrowing due to this major gap. As a result, we are experiencing a rapid increase in external debt and financing costs. You can see how much Romania’s public debt has risen—it reached nearly 55% of GDP last year and may hit almost 60% by the end of this year. The large-scale borrowing and the accelerated growth in debt have rightly worried markets and investors, and this is reflected in the interest rates Romania pays on its loans. Compared to the EU average, our interest expenditures have reached a very high level—2.3% of GDP. This means that last year we paid about 40 billion lei in interest—roughly 8 billion euros—and we will pay even more in 2025.   Regardless of which government comes in the following years, if this deficit is not corrected, the fiscal space will continue to shrink, and the measures that need to be taken must aim to reduce the deficit. This can only be done through a combination of revenue increases and spending cuts, due to the wide gap.   Another complicated situation is the very low absorption of EU funds. To ensure future investments, which mean long-term development for the country, we depend on accessing these funds. Last year, out of approximately 120 billion lei in investments, more than half came from European funds. Therefore, if we don’t access EU funds, we cannot ensure ongoing highway construction, railway rehabilitation, and other projects won by central and local authorities.   We have the NRRP (National Recovery and Resilience Plan), worth 28.5 billion euros. Nearly half are grants—13.5 billion euros—and the rest, 15 billion euros, are loans. So far, we’ve received 10.7 billion euros, including the last tranche, pre-financing, and the first three payment requests—just over 36% of the total. Of that amount, 6.4 billion euros are grants, meaning we’ve accessed about half the grants, and 4.3 billion euros are loans, about one-third. The deadline for drawing all this money is the second half of next year, August 2026.   To secure ongoing investments and avoid losing grants, this situation calls for urgency in addressing all problems to accelerate fund absorption. The second major program is Cohesion Policy, where absorption is also low, although we benefit from more time—it can be closed in 2029. We have 31 billion euros available, of which we’ve only received around 3.3 billion euros (about 10%), and we’ve made payments to beneficiaries of about 4.8 billion euros (15%). We’re doing better with contracting—over 80% of the total amount has been contracted.   The total value of projects is 46 billion euros, so around 15 billion euros (the difference between EU grants and total contract value) represents co-financing that Romania must provide—whether by the government or local authorities. In the coming years, this will create financial pressure to ensure co-financing and enable us to draw those EU funds.   Our trade balance is completely unbalanced—we import much more than we export. The demand generated by pension and salary increases is wasted on the large volume of imports. Therefore, we need to develop programs to support exports and increase domestic production, particularly in areas where we have growth capacity and still rely heavily on imports.   We’ve been spending without regard for revenues. Our expenditures are much higher than revenues. In 2024 compared to 2023, revenues grew just over 10%, but overall state spending increased by 19%. Where did this increase go? There are three components disconnected from revenue growth.   We’ve seen a salary increase in the public sector that exceeds both inflation and revenue growth. From 2023 to 2024, public sector wages rose by 24%. Clearly, some sectors are overstaffed, and there are privileges and institutions where salary funding can be corrected without affecting their functionality.   In the past four years, inflation has totaled 36%, while the pension fund has increased by 53%. Last year alone, the pension fund increased by 19%, and since the latest hike took effect only in September, this year we’ll see the full impact across all 12 months. It’s good that pensions have increased, but we must consider the country’s ability to sustain them and ensure a fair distribution, as there are major inequalities in the pension system.   Some areas have too few employees—like health, social assistance, and education—but others, like public administration and public safety, have a much higher share of staff compared to the EU average. If we had more taxpayers, this wouldn’t be as big of a problem.   A serious issue is that too few people work compared to the number of beneficiaries. Among the working-age population (15–64 years), nearly 33% (around 4 million people) are not engaged in any activity. Even if we exclude Romanians abroad, we’re still second-to-last in Europe. For people over 65, we are dead last in terms of activity rate. Due to early retirements, we now have a situation where half of those aged 55–64 are not working, even though this is an age at which their experience and wisdom could be valuable to newcomers in the labor market. The share of contributors to the public pension system among the active population is one of the lowest in Europe. In the coming years, it will undoubtedly be a challenge for governments to manage pension payments in Romania.   Investments will increase by 19% in 2025, which is a good thing.   Our low budget revenues are caused by permissive or flawed legislation, widespread tax evasion, and weak administrative performance in tax collection. Our VAT collection rate is still very low. We have a permissive insolvency law that allows cascading bankruptcies, leaving the state with large amounts of uncollected money.   There are major opportunities for tax optimization, under-taxed property, and exemptions.   Romania’s tax revenues are among the lowest in the EU as a share of GDP—under 30% compared to the EU average of 40%. That makes it very hard to sustain high spending on investments, salaries, a large public workforce, and pensions. This model simply doesn’t work long-term—it has reached its limits.   The next government will be forced to implement corrections.   Romanians have low trust in the direction the country is heading, in the enforcement of laws, and in institutions, which have very low trust ratings.   What have we tried to do in recent days? In such situations, there are no simple solutions. Those who promise magic fixes—we, the responsible ones, know they are false prophets. We must tell people the truth. We can no longer afford to make promises that cannot be fulfilled.   Unpopular but necessary corrective measures must be taken. We need critical mass, parliamentary support. I believe this week we are seeing that critical mass take shape, and I expect discussions to wrap up next week so that the package of measures can receive backing as soon as possible.   We must regain trust—between parties, between parties and citizens—and fight for people to restore their confidence in institutions. Our adversaries are not the parties with whom we negotiate or those in Parliament, but incompetence, irresponsibility, a lack of common sense, indolence, and unseriousness.”