Romania’s ruling coalition divided over “solidarity tax” for large companies

Romania’s ruling coalition divided over “solidarity tax” for large companies
The new Romanian government backed by a grand PSD/PNL/UDMR coalition. /
By Iulian Ernst in Bucharest December 8, 2021

The leading parties of Romania’s ruling coalition reportedly disagree over a “solidarity” turnover tax for large companies, which could finance the supplementary social spending advocated by the Social Democrats (PSD).

The disagreement comes shortly after Romania’s two largest political parties, the PSD and National Liberal Party (PNL) formed a grand coalition together with the Democratic Alliance of Hungarians in Romania (UDMR), putting an end to a long political crisis. However, there remain significant policy differences between the PSD on the centre-left and PNL on the centre-right. 

The “solidarity tax”, initially proposed by the UDMR and backed by the Social Democrats, consists of a 1% tax levied on the revenues of the companies with a turnover of €100mn or higher, mostly foreign-owned or subsidiaries of multinational groups. The tax is expected to bring in around €1.6bn (0.7% of GDP) of revenues to the budget per year.

The PNL reportedly rejects such a tax, as well as the supplementary social expenditures advocated by the Social Democrats. At this moment, the Ministry of Finance is controlled by the Social Democrats, while Prime Minister Nicolae Ciuca was nominated by the Liberals. 

Both members of the ruling coalition reportedly agreed, prior to forming the alliance, on a package of social expenditures estimated to cost the budget some 1% of GDP in 2022. The Social Democrats reportedly plan to raise the wages in the education and health systems — which prompted negative reactions from the Liberals. The Social Democrats also want to levy a special tax on “extraordinary revenues” of large size, PSD president Marcel Ciolacu confirmed, without providing many details. 

The US Chamber of Commerce in Romania (AmCham) has urged the Romanian government to abandon its intention of introducing the so-called “solidarity tax”, and focus instead on policies that encourage investments. It’s not the tax itself, but rather the way it would be introduced — overnight and not as part of a broader strategy — AmCham argued.

"The business community does not question the need to fund critical systems or vulnerable groups from the state budget, but the way used to adopt overnight fiscal measures, contrary to the best practices … Importing measures applied in other countries does not guarantee their applicability and adequacy for the Romanian economy," AmCham’s statement reads.