Draft legislation for municipal reorganization in Romania unveiled
Romania is set to undergo a significant local administration reform in 2025, aimed at reducing public spending and generating savings of over 400 million euros annually. This restructuring is part of a broader second package of fiscal and budgetary austerity measures, intended to help reduce Romania's budget deficit.
Key details and measures of the reform include:
- Job reductions: A planned cut of 40,000 positions in local administration to reduce public spending.
- Fiscal austerity link: The reform is part of a wider fiscal consolidation effort, with the first austerity package already effective from August 1, 2025.
The reform bill follows the general outline provided by Minister Czeke Attila. The draft bill, published by the Ministry of Development on August 7, includes measures such as a 20% downsizing of the recommended staff in village halls to city halls and prefectures, and a reduction of 6,060 personal advisors employed and paid from the budget by top public servants.
Moreover, the draft bill aims to improve the coverage of property taxation by identifying all properties and charging a 100% supplementary property tax for properties without a building permit over a period of five years.
However, the reform faces opposition from magistrates, and there are legal uncertainties around wage cuts and job eliminations that might face court challenges. As of July 2025, the legislative process for approving the reform was undecided, with political debates ongoing regarding the use of accelerated procedures versus full parliamentary debates and votes.
It's important to note that the budgetary impact is not solely due to job cuts but also to tax reforms implemented concurrently, including increases in VAT rates (from 19% to 21%) and dividend taxes (from 10% to 16%), which also aim to improve fiscal balance but indirectly affect local government revenues and expenditures.
The Fiscal Council's projection shared by the rating agencies estimates the impact of the first package of reforms on the general government budget at 3.3% of GDP in 2026. The substantiation note published along with the draft bill indicates RON 2.2 billion (EUR 400 million) lower annual expenditures from the general government budget.
The recovery of unpaid local taxes will be passed to judicial officers, and the draft bill includes detailed evaluation procedures for employees in the local public administration. The lower annual expenditures account for only 0.1% of this year's GDP.
In summary, Romania’s local administration reform is a significant austerity-driven restructuring targeting staff reductions and cost savings to help reduce the budget deficit, accompanied by broader tax policy changes to strengthen public finances. The reform's progress and final approval are currently under discussion in the Romanian parliament.
[1] "Local administration reform in Romania: What's at stake?" (July 2025) [2] "Romania's local administration reform: Key details and measures" (August 2025) [3] "Fiscal Council's projection on Romania's first package of reforms" (June 2025) [4] "Impact of tax reforms on Romania's local government sector" (July 2025) [5] "Rating agencies' outlook on Romania's reform packages" (June 2025)
- The local administration reform in Romania, planned for 2025, is intertwined with not only finance and business but also politics, as it involves reducing public spending and jobs by 40,000 positions, aiming to address the country's budget deficit.
- The reform includes a general news aspect as well, with the proposed tax reforms, such as VAT rate increases and dividend tax hikes, projected to impact fiscal balance, affect local government revenues, and add to the overall cost-saving efforts.
