Economist: Romania in Prolonged Recession, Risks Collapse Without Tax and Budget Reforms

Romania is not merely experiencing a difficult economic period but is already mired in a prolonged recession, warns economist Adrian Mitroi, a founding member of CFA Society Romania. In an interview with "Adevărul," he asserts that the country risks entering an economic "purgatory" if it fails to abandon the flat tax, introduce progressive taxation, and profoundly restructure its budget apparatus. Otherwise, he cautions, the burden will continue to fall on the middle and vulnerable classes, potentially leading to economic collapse.

“

We are already in a prolonged recession. You don't get out of recession easily, because interest rates are very high and the central bank has this reason of inflation for not lowering them enough to stimulate the economy a little.

Mitroi points to anticipated inflation reaching 7.63% next year, coupled with meager economic growth of just 0.1%, as indicators of a "stagflation" scenario. He explains that escaping recession is difficult when interest rates are high, and the central bank maintains them to combat inflation, thus stifling economic activity. The current economic model, he argues, is regressive, with inflation and the flat tax disproportionately affecting the poor and favoring the wealthy.

“

So an economy without stimuli cannot easily get out of recession unless it goes through the wringer of stagflation, as you correctly said, a subpar economic growth with a lot of damage in this process.

He divides the population into two main groups: those with net financial assets and those with net financial liabilities, particularly the heavily indebted and those spending half their income on subsistence. Mitroi believes the current economic system exacerbates the divide, with the poorest segments suffering the most. He expresses doubt that the political landscape will shift quickly enough to implement progressive taxation, despite its potential to create a healthier economic balance.

“

Thus, society would be divided into two major segments, each with its own middle class. But the poorest are most affected by the current economic model, which is regressive: inflation hits disadvantaged categories harder, and the flat tax has the same regressive effect, indirectly favoring the rich at the expense of the poor.

The economist stresses that Romania faces a critical choice: adopt progressive taxation and budget reform to navigate a difficult few years, or face the consequences of economic collapse. The current trajectory, he concludes, places an unsustainable cost on the most vulnerable segments of society.

“

I don't think the political balance will change quickly enough to allow the introduction of progressive taxation, although it would be a healthy solution and appropriate.