MPs back 10% public sector wage hike as Romania awaits new government

MPs back 10% public sector wage hike as Romania awaits new government
By Iulian Ernst in Bucharest November 11, 2015

Romania’s lower house of parliament overwhelmingly approved a proposal for a 10% wage hike for all public sector employees on November 11.

The bill was rushed through parliament the day after President Klaus Iohannis designated former European Agricultural Commissioner Dacian Ciolos to form a new technocratic government. If approved by Iohannis, it will result in a substantial increase in the budget deficit, further complicating Ciolos’ task, assuming his cabinet is backed by MPs.

The wage hike is expected to cost the budget some RON5bn (€1.1bn), according to unofficial sources. This would raise the deficit by 0.7% of GDP, which might push the overall fiscal gap above 3% of GDP.

Romania’s independent Fiscal Council expects the general government deficit to widen towards 3% of GDP in 2016 and to exceed this value in 2017, unless compensatory measures are taken by the government. The EU Treaty defines an excessive budget deficit as one greater than 3% of GDP, and Romania could be subject to corrective measures if it exceeds this threshold.

Despite this, the amendment was backed by 311 of the 319 deputies present at the parliament session on November 11. The broad cross-party support despite earlier objections from the National Liberal Party (PNL) shows politicians are already trying to win over the electorate ahead of the autumn 2016 general elections, regardless of the consequences for fiscal stability.

Even without the 10% wage hike, it is likely that the new government, which will be responsible for 2016 budget planning, will have to raise some tax rates in order to prevent the fiscal slippage triggered by the fiscal loosening of Prime Minister Victor Ponta’s government, which resigned on November 4.

The original bill was drafted by Ponta’s government specifically for employees in the public healthcare system, but the amendment was endorsed by an expert committee on November 10. The 10% hike in the wages of all state-sector employees will come into effect as of December 1 if the bill is promulgated by Iohannis.

The bill can be challenged in the Constitutional Court for not having a background report on fiscal impact attached. However, this is unlikely as no party has expressed an interest in challenging the draft legislation.

Earlier this autumn, Ponta’s government hiked wages for employees in the state education and healthcare systems, prompting concerns about fiscal slippage. A public wage bill was being considered by the government before Ponta’s resignation, but its fate is now unclear.