The new pension law currently under debate will generate a “budgetary impact” of RON9bn in 2020, RON29bn in 2021 and RON40bn in 2022 (3.2% of GDP) when fully enforced, according to Finance Minister Eugen Teodorovici. 

Although he did not specify this, the “impact” is the supplementary deficit of the public pension system compared to the baseline scenario of no change in the pension system.

The draft new pension law will be discussed by the government on October 10, after the bill was endorsed by all relevant government bodies, and will be sent to parliament by the end of the year, Teodorovici announced. The bill has been discussed over the past year. Labour Minister Lia Olguta Vasilescu has advocated for the bill and will make public its main principles at the government meeting on October 10.

“It’s a lot of money. [The ruling party’s] president [Liviu] Dragnea said it’s a challenge. It’s the greatest challenge,” Teodorovici said quoted by hotnews.ro. But as long as “we can bring money from [the real sector of the] economy, we should not be afraid,” he added.

But how much money the government will be able to “bring from the economy” remains unclear. It has already pushed up the public payroll by some 20% over the past year alone, putting pressure on the general government budget seen by independent analysts at above 3% of GDP this year and even more in 2019.

The IMF has revised downward the GDP growth projection for this year from 5.1% to 4% to reflect the broad expectations of an economic slowdown after the massive fiscal stimulus in 2017-2018 is phased out. 

Teodorovici mentioned a higher VAT collection rate as a potential source of money for higher pensions. But such promises have been floated for years with modest if any outcome. Net VAT revenues in January-August increased by 8.6% y/y despite the 5% y/y average consumer price inflation and 6% y/y increase in retail sales.