Romania’s new Liberal government, headed by Prime Minister Florin Citu, announced at the end of 2020 the first economic measures that comprise a combination of tight income measures supportive of the 7%-of-GDP budget deficit target on the one hand, and further support for the companies and employees hit by the coronavirus crisis, on the other. 

The package, already criticised by the Social Democratic opposition as an “austerity package”, essentially includes freezing wages and other benefits in the public sector for the whole of 2021 at the level of December 2020. 

This will allow the government to defer raising the budget of the Ministry of Education to 6% of GDP in line with a law that has been in force for several years but never observed. Child benefit will rise by only 20% in 2021, less than promised by Citu before the recent general election when he was finance minister. At that time, he announced a gradual increase including another 20% rise as of July 2021. In addition, President Klaus Iohannis blocked the indexation of social benefits to inflation, as they were not indexed in previous years.

Wages in the education system were supposed to rise by 16% as of September 2020, a measure that will be deferred until at least the end of 2021 after the government’s decision. However, the 16% rise was scheduled in advance, in 2019, when the Social Democratic Party (PSD) was in power, and it was aimed at bringing wages into line with the 2022 target under the law on implementation of a fair income policy in the budgetary sector. 

The law on public sector wages and particularly the way it has been implemented so far needs to be reviewed, Citu explained when announcing plans to freeze incomes in the public sector. “All kinds of anomalies and exceptions have occurred” during the implementation of the law, Citu argued.

“The incomes [in the public sector] will remain at the level of December 2020, until we have an analysis of the effects and implications of the wage law, those exceptions that have constantly appeared and on how it was modified and applied — incorrectly, I believe, in recent years," Citu stated, quoted by News.ro.

In addition to the government’s decision to freeze public wages, Iohannis returned to parliament the bill passed by former lawmakers in October and promoted by now opposition PSD and their allies ALDE and Pro Romania, by which the benchmark index used to calculate social benefits (ISR) is supposed to increase by 140% gradually over the next three years starting January 1. The rise might look excessive, but it is an adjustment for inflation over the past 12 years, according to Profit.ro. 

Under the draft law, ISR should increase by 56% as of January 2021. The impact on the budget is estimated by the authors of the draft law at RON0.23bn ($47mn, 0.023% of GDP) in 2021, RON0.17bn in 2022 and RON0.17bn in 2023.

Freezing wages in the public sector, however, is seen by some as insufficient for curbing the ballooning public payroll. Citu himself, in his former capacity of finance minister, spoke in November about an audit to be carried out by each ministry with the purpose of identifying unnecessary personnel. The “lazy, underperforming” employees will be dealt with, he announced at that time. The statement addressed concerns related to the sharp rise of incomes in the public sector, particularly in the context of the poor quality of public services delivered. Tougher criticism was expressed by Citu and Liberal officials while in opposition, when Social Democratic governments were hiking public sector wages and benefits.

Another important step included by Citu in the first package of economic measures is deferring special pensions for former members of local elected bodies.

The minimum statutory wage will increase by 3.1% as of January 2021, an increase promoted by the government as higher than inflation and by the opposition as lower than expected, after robust hikes of the minimum wage played a key role in boosting households’ revenues, private consumption and eventually economic growth when the Social Democrats were in power. 

Separately, the measures employed in 2020 to support companies hit by the coronavirus crisis will be continued during the first half of 2021, Citu announced. The measures specifically refer to technical unemployment benefits, financial support for companies maintaining their personnel after technical unemployment and kurzarbeit subsidies.

The government will also keep subsidising the loans extended by banks to companies under the Agro SME Invest programme via a decree to be passed in early January. Furthermore, the government promised a state aid scheme for the hotel, restaurant and catering (HoReCa) sector with a budget of €500mn. Under the programme, the government will cover part of the drop in incomes incurred in 2020 compared to 2019. Holiday vouchers will be given to public sector employees in 2021. HoReCa companies will also be supported by specific tax exemptions.