In March, the European Council endorsed proposed policy priorities and guidance for the 2018 European Semester made by the Commission. These priorities were defined as boosting investment, pursuing structural reforms, and ensuring responsible fiscal policies. Following this step, each member state presented their national reform programmes for economic policies and stability programmes for their fiscal policies in April. On 22nd of June 2018, the European Council approved recommendations and opinions on the member states’ economic and fiscal policies for 2018.
For 2019, the Council recommends the country to take measures to ensure that government spending not exceed 5,1%, corresponding to an annual structural adjustment of 0,8 % of GDP. The fiscal responsibility laws in Romania are well designed but, in reality, are poorly implemented and often overlooked in practice. Romania’s 2016, 2017 and 2018 national budgets all targeted a deficit close to the allowed 3% of GDP; however, for example, two budget amendments in 2017 did not comply with the rules prohibiting increases of the headline and primary deficit ceilings and increases in personnel and total government expenditure.
Regarding taxes, the Council found that tax compliance remains low. The difference between expected tax revenue and actually collected revenue was high. Introduction of cash registers connected to the tax administration’s information technology system is expected to help this problem following implementation in the near future.
For the people of Romania, while the labour market has been tightening due to a combination of economic growth and reduction of the labour force from emigration and the aging population, a substantial amount of unused labour remains. Especially affected are young people, Roma, and the long term unemployed. The Council found that Romania has done little to act on previous recommendations related to the strengthening the labour market.
The risk of poverty or social exclusion remains high for these same groups. Income inequality is high also due to the low impact of the tax-benefit system on mitigating market income inequality. Romania has a highly compressed wage distribution with around 30% of workers earning the minimum wage. The Council has recommended Romania complete the minimum inclusion income reform and ensure minimum wage setting based on objective criteria. Increasing the quality and performance of the education system would also aid in the country’s long term growth prospects, particularly for the Roma and children of rural areas.
In conclusion, the Council distilled the report into three recommendations:
- Ensure compliance with the Council recommendation of June 2018 with a view to correcting the significant deviation from the adjustment path toward the medium-term budgetary objective. Ensure the full application of the fiscal framework. Strengthen tax compliance and collection.
- Complete the minimum inclusion income reform. Improve the functioning of social dialogue. Ensure minimum wage setting based on objective criteria. Improve upskilling and the provision of quality mainstream education, in particular for Roma and children in rural areas. Improve access to healthcare, including through the shift to outpatient care.
- Increase the predictability of decision-making by enforcing the systematic and effective use of regulatory impact assessment and stakeholder consultation and involvement in the design and implementation of reforms. Improve the preparation and prioritization of large infrastructure projects and accelerate their implementation, particularly in the transport, waste and waste water sectors. Improve the transparency and efficiency of public procurement. Strengthen the corporate governance of State-owned enterprises.
For further information: Country-specific recommendations