Disputes regarding the new pensions law
Last week, on Monday, the Minister for Labour, Simona Bucura Oprescu, together with Prime Minister Marcel Ciolacu announced the draft for the new „pensions law„, as the request in the National Resilience and Recovery Plan. According to the two social-democrats, the pensions will get increased two times next year:
-starting with 1st of January, all the pensions will get 13.8% increase and
-starting with 1st of September, the majority of pensions (about 3 million out of the 4.7 million) will be again increased, due to the new formula.
That will cost the budget next year an additional expense of 26-30 billion RON and, starting 2025 for the following three year, an additional expense of about 50 billion RON. All of the sums above are exceeding the budgetary planning with at least 10 billion RON in 2024 and 33-35 billion RON for the following three year, which could cause the failure of the deficit reduction policy. All of this should be understood in the context of Excessive Deficit Procedure, launched in 2019 by the EU in the case of Romania.
Few days after the announcement of the social-democrats, the president of PNL, Nicolae Ciuca claims that the new budget impact calculated for the new pension law makes this project unsustainable. Ciuca explained that with a budget impact of 55.6 bln RON, Romania budget deficit will increase by 3%, which is unacceptable.
„According to the figures announced late night, the impact is approximately 3% of GDP, it is enormous, we have to identify the sources of financing, we cannot promise people. Let`s not come with promises that are unsupported financially„, said Ciuca.
The PNL president also said that the liberals will approve the law after the funding sources for the pension increase are established. „ We will definitely give an opinion; we all want to eliminate inequities and balance the pension system. As such, will clarify„, said the former prime minister.
The issue remains to be discussed during the Government meeting.
Nicolae Ciuca `a reaction comes in the context in which why Minister of Finance, Marcel Bolos, refused to sign the approvals for the new pension law, on the grounds that there is no funding source to increase pension so high.
PM Marcel Ciolacu called the Government meeting Thursday at 12.00 to discuss the new pension law, but also to modify the law limiting cash transactions. Just 2 hours before the meeting, a scandal erupted inside: Minister Bolos refuses to sign the new pension law, but also the amendments to the law regarding the limitation of cash transactions,
According to government sources, Boloș refuses to sign the new pension law on the grounds that are not funding sources to increase pension from September, 1st.
According to government sources, Marcel bolos changed his mind and signed for the new pension law. Also, Bolos refuses to sign the return to the old cash ceilings because this measure was supported by the Ministry of Finance and would face brought extra money to the state budget.
This week, on Tuesday, after the draft already passed the Senate vote, the leaders of the two ruling parties, Liberal Nicolae Ciuca (PNL) and Social Democrat Marcel Ciolacu (PSD), announced they reached an agreement on supporting the new Pension Law that is thus likely to get endorsed by the lawmakers of the two parties on November 14. „All aspects related to the Pension Law, including those regarding the funding sources, were ironed out in the meeting of the coalition parties this afternoon. Therefore, the law will be endorsed in Parliament with the support of the two parties,” prime minister Ciolacu announced on his Facebook page after the ruling coalition meeting, Cursdeguvernare.ro reported. The Liberals had previously expressed concerns regarding the financing for the pension law, which envisages an average 40% rise in pensions starting September 2024. The impact on the budget is expected at 3% of GDP for 2025. The International Monetary Fund (IMF) reportedly recommended Romania, under the Article IV Consultations conclusions to be soon released, to amend the Pension Law in order to smooth its impact on the budget.
Explanations of the two parties’ position
The PSD having the PM position, the party was pushing for this generous law with the objective to catch, as usual, the majority of the votes of the aged people in the next year elections. Specially with the pension`s increase in September, just two months before the parliamentary and presidential elections, the votes of the poor people will be flowing to the social-democrats.
In this point, the liberals saw their chances in the elections far from enough and they decided to play against the measure, taking the job of the serios and responsible with the budgetary balance in the coalition. The figures of the new law are clearly favoring the liberal`s position, especially due to the EU and IMF recommendations. The liberals also understand that the fresh pensions expense will require some new tax increases to balance the budget.
But just few days after this dispute, the liberals changed their minds and they publicly stated they will support the adoption of the law in the parliament, because internally they are terrified by the possibility to get all the frustration of the aged people, as being the party against the pension`s increase. Now, they are hopping the law will be dramatically changed during the EU approval and the PSD will have to explain to the people in pension why the law will not be applied as promised.
Prospectives in the coalition
With this dispute regarding pensions solved, there is no other relevant dispute to appear in the next months, with the EU elections scheduled for the beginning of June. So, for the moment, the coalition is stable and the President Iohannis is strongly supporting the unity in the government.
The social-democrats are now the main ruling party, they are bringing all the main government ideas and measures and the liberals take the junior`s role, as the secondary voice in coalition.
This situation will speed up the alternative group inside the PNL and they will try to change the current leadership, but the chances to do this are insignificant due to the president Iohannis strong support for Nicolae Ciuca.
