BUCHAREST (Reuters) - Romania cannot afford to raise taxes in 2025 and should focus on curbing tax evasion to rein in its budget deficit, Prime Minister Marcel Ciolacu told small business owners on Tuesday.
The country, which holds national and presidential elections late this year, saw its budget deficit widen to 3.4% of economic output by the end of May, putting the ruling coalition government's full-year target of 5.0% of GDP out of reach.
The European Commission sees Romania's deficit rising to 6.9% of gross domestic product by the end of 2024, and further still, to 7% of GDP in 2025 -- the bloc's highest levels. Ratings agencies, analysts and investors have all said they expected tax hikes from 2025.
"I keep hearing of increases in the value-added tax, that is out of the question," Ciolacu told a conference of small and medium-sized companies. "It is the simplest approach a government can take."
"I don't think Romania can afford to raise taxes next year. Romania must conduct an analysis and continue fiscal reform in the exemptions areas."
He said the tax agency must target tax evasion as well as continue digitalization efforts.
The budget gap surged more than expected at the start of the year due to high spending on defence as well as rises in pensions and some state sector wages before national and presidential elections in November and December respectively.
Romania has been under the EU's excessive deficit procedure since 2020 - whereby it must present the European Commission with a multi-year plan to reduce the deficit back within the bloc's ceiling of 3% of GDP. Its tax revenue amounts to less than 30% of GDP versus the EU average of 41%.
The country initially committed to bringing its budget deficit below the EU's 3% ceiling by 2024. However, it currently expects to meet that target only by 2027, assuming it does not change its tax system.
(Reporting by Luiza Ilie; Editing by Susan Fenton)
