Romanias coalition government has decided to bump up the monthly gross minimum wage by 95% to 4050 lei (around $884) starting January 2025. Marcel Ciolacu‚ the Prime Minister made this announcement after meeting with employers and unions on 10/16/24
The timing of this wage hike is noteworthy as Romania is gearing up for presidential and parliamentary elections scheduled for November and December 2024. Its worth mentioning that the government has already increased state pensions twice in recent months‚ which has contributed to an expanding budget deficit
The wage increase and pension hikes have had a significant impact on Romanias economy. The countrys inflation rate is currently the highest in central and eastern Europe and according to S&P Global Ratings it is likely to remain above the target range of 15% to 35% until 2027. This situation has been exacerbated by the widening fiscal shortfall and substantial wage gains
In addition to the wage increase the government is planning to extend a tax exemption for up to 300 lei of the wage. However Romania has yet to unveil its 2025 budget plan. Analysts and rating agencies are expecting some form of tax increases to be implemented in order to strengthen public finances
Ciolacu mentioned that Romania has a seven-year deficit reduction plan agreement with the European Commission. However the country has not submitted its plan yet. Fiscal consolidation is crucial for Romania to continue receiving billions in EU recovery and development funds - approximately 74 billion euros by 2027. These funds are essential for supporting infrastructure investment and economic growth
We have a seven-year deficit reduction plan agreement with the European Commission
Romania had initially promised to bring its budget deficit below the EUs ceiling of 3% of GDP by 2024. However the countrys independent fiscal watchdog now expects the gap to widen to around 8% of economic output
The governments decision to raise the minimum wage and increase pensions in the lead-up to elections has raised concerns about the countrys fiscal health. While these measures may provide short-term relief to workers and pensioners they could potentially have long-term consequences for Romanias economy and its relationship with the European Union