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duces a new system for setting the gross minimum wage, based on the projected inflation and productivity growth rates by an independent institution, while ensuring that the minimum wage remains within a certain range relative to the average wage. The reform aims to improve predictability of minimum wage updates, supporting the avoidance of ad hoc increases with potential negative impact on cost competitiveness. The reform will be implemented in 2025 and is expected to generate extra revenue worth 0.1% of GDP. • Reform of the public sector remuneration system. The reform commitment is additional to milestone 420 of Romania’s RRP on developing a fair unitary pay system in the public sector. The objective of the reform is to ensure a fair and fiscally sustainable wage policy by revising ranking coefficients for each occupational family, salary scales for local government officials, and capping bonuses at 20% of the basic salary. The plan stresses the need for the reform to be compatible with fiscal sustainability, to be implemented while respecting the envelope for total public sector compensation included in the plan, and the provisions of the fiscal responsibility law. The reform will only be implemented when the government deficit has been reduced to below 5.0% of GDP. • Reform of the taxation of micro-enterprises. The plan refers to milestone 206 of the Romanian RRP on the review of the tax framework. It summarises the measures already taken, which are under review in the context of the third payment request. The main objective of the reform is to reduce the scope of the micro-enterprises regime by tightening the eligibility conditions, while keeping the system as simple as possible. Some measures have already been taken in 2022 and 2023, and the plan says the remaining steps will be phased in starting from 2025. The plan estimates this reform will generate 0.1% of GDP extra revenue for the government. Additional revenue could be generated if the reform consisted in a decisive reduction of the eligibility threshold to the micro-enterprises tax regime, and alignment with the VAT threshold. This would keep the system simple and make its administration easier. EN 10 EN  • Tax reform. This is an existing RRP measure and concerns milestones 205, 207, 208 on the review of the tax framework, as well as milestone 237 on developing an automatic property valuation model. The description of the main objectives of the reform is in line with that of the RRP (greater fairness, simplicity and predictability of the tax system, better incentives). The reform targets an increase in government revenue of 1.1% of GDP in 2025, net of the impact of the increase in the tax-free portion of pensions (which is equivalent to a tax cut worth 0.2% of GDP). To achieve this target, new measures will need to be implemented by the end of Q1 2025, resulting in a full-year increase in government revenue by 1.7% of GDP. These measures are not yet specified but the plan outlines a process leading to implementation of the reform and mentions that all areas of taxation can be subject for reform. • Reform of the tax administration. This reform builds on commitments in milestones 225 and 226 on improving tax and tax administration processes. The main objective of the reform is to increase the efficiency and administrative capacity of ANAF, the tax administration agency, by leveraging digital tools and implementing stricter monitoring mechanisms. It includes several measures, in particular: introduction of a VAT fraud early detection mechanism; introduction of analytical tools to address the VAT gap; greater digital compliance monitoring; introduction of tax planning control mechanism for large and medium-sized taxpayers; integrating and consolidating internal databases; and amending the insolvency legislation to ensure greater control over the situations of companies that declare themselves insolvent. The impact of this reform is estimated in the plan at 0.5% of GDP over the 7-year period, which seems plausible. • Reform of the public expenditure system. This reform is additional to commitments in milestone 202 on improving the budgetary programming mechanism, milestone 234 on improving the budgetary programming mechanism, and milestone 392 on ensuring minimum wage setting, as well as target 403 on enhancing the predictability and efficiency of decision-making processes in government. The reform aims to increase efficiency, transparency, and fiscal responsibility in the use of public funds. It includes measures to control unjustified cost overruns, implement systematic expenditure assessments (spending reviews) and expand centralised procurement. The RRP and the plan, taken together, include several measures to align spending reviews with international best practice: improve government ownership and political commitment to the process, hire competent staff to conduct the reviews, include quantified savings targets, improve the governance structure, and better integrate reviews with the budget process. According to the plan, this reform is estimated to generate permanent savings amounting to 0.35% of GDP, which seems plausible. • Reform of the financing system for businesses. This is a new measure beyond those in the Romanian RRP and it aims to support the business environment, in particular the manufacturing industry and SMEs, and to creating private equity financing mechanisms “that are oriented towards economic performance”. The reform foresees, in particular, the establishment of an Investment Fund for the support of the private equity business for SMEs, a new legal framework to support strategic investments in the economy for the manufacturing industry, and a new legal framework for granting special purpose grants for the EN 11 EN  manufacturing industry. The impact of the reform is not quantified, but it can be expected to contribute positively, albeit marginally, to potential growth. • Reform of the expenditure system of state/local economic operators (state- owned enterprises, SOEs). This reform is a new measure beyond those outlined in the RRP. The goal of this reform is to generate savings across SOEs, through efficiency gains and greater responsibility in spending decisions. This reform includes several measures, such as the introduction of spending rules and new practices to better manage capital spending, going in the right direction. Potential additional revenues are estimated in the plan at 0.25% of GDP for the entire period of the plan, which according to the Commission seems ambitious. (29) In line with Article 14 (3) of Regulation (EU) 2024/1263, each reform and investment underpinning an extension of the adjustment period is sufficiently detailed, front-loaded, time-bound and verifiable. (30) The RRP commitments underpinning the extension contain significant reforms and investments aimed at improving fiscal sustainability and enhancing the growth potential of the economy. In addition, Romania commits to continuing the reform effort over the period covered by the medium-term fiscal-structural plan and maintaining the nationally financed investment levels realised over the period covered by the RRP (see below, Table 5). The commitment will be monitored throughout the implementation phase of the plan. Accordingly, commitments under the RRP can be taken into account for the extension of the adjustment period as provided by Article 36 (1), point (d) of Regulation (EU) 2024/1263. (31) The set of reforms and investments underpinning the extension is expected to improve the growth and resilience potential of Romania’s economy in a sustainable manner as required by Article 14(2), point (a) of Regulation (EU) 2024/1263. The plan does not provide quantified estimates of the impact of reforms and investments on potential growth. However, pension reforms (general system and special pensions) should over time contribute to a larger labour force relative to the non- reform scenario and therefore increase potential GDP. Moreover, the plan foresees a large increase in public investment, especially in the early years of the period covered by the plan, from 5.4% of GDP in 2023 to 7.1% in 2025 and 7.3% in 2026. These investments, in all areas including key infrastructure, will help increasing the growth potential and resilience of the economy. Spending reviews should also help reallocation of resources within the budget towards growth enhancing priorities. (32) The set of reforms and investments underpinning the extension is expected to support fiscal sustainability as required by Article 14(2), point (b) of Regulation (EU) 2024/1263. Reforms related to the revenue side of the budget will generate significant additional revenue for the government. The cumulative effect of the tax reform, the reform of tax administration, and the reform of the tax regime for microenterprises should, when fully implemented, yield additional revenue of the order of 2.0% to 2.5% of GDP. On the expenditure side, reforms aimed at strengthening spending reviews and the management of state/local economic operators (SOEs) are expected to generate savings worth 0.5% to 1.0% of GDP, even if some of the estimates in the plan seem on the high side. Also, the unitary pay law for public sector employees should, if implemented within the envelope foreseen in the plan, allow for a meaningful reduction of the public wage bill as a share of GDP by 1.5% of GDP between 2024 and 2031 according to the plan. Finally, the pension EN 12 EN  reforms (general system and special pensions) will already generate savings by the end of the 7-year period covered by the plan, but the bulk of the savings will materialise over the longer term. (33) The set of reforms and investments underpinning the extension contributes to the common priorities of the EU as required by Article 14(2), point (c) of Regulation (EU) 2024/1263. Most of the reforms underpinning the extension request contribute to social and economic resilience, by ensuring fiscal stability, improving the efficiency of the public sector and promoting sustainable economic growth. Commitments in the area of improving tax administration and implementing thorough spending reviews should over time allow to reallocate resources towards priorities favouring economic performance and social improvements. The reform of the minimum wage setting mechanism should secure an appropriate level for the minimum wage that respects social and economic priorities. Pension reforms (general system and special pensions) will secure the sustainability of the system and increase equity and fairness in the level of pensions. Finally, improvements in the digitalisation of the tax administration should contribute to the digital transition. The other common priorities of the EU, namely ensuring energy security and the build-up of defence capabilities, are not directly addressed by the set of reforms and investments underpinning an extension, though the former is addressed in Romania’s RRP. (34) The set of reforms and investments underpinning the extension addresses some of the relevant 12 CSRs issued as part of the European Semester as required by Article 14(2), point (d) of Regulation (EU) 2024/1263. In particular, reforms are expected to contribute to the CSR issued in 2023 on addressing the fiscal recommendation requesting Romania to correct its excessive deficit and addressing excessive imbalances. In the macroeconomic scenario underpinning the plan, the current account deficit is projected to narrow from 7.7% of GDP in 2024 to 4.1% of GDP in 2031. Most of the impact comes from the reduction in the government deficit, supported by the reforms underpinning the request for an extended adjustment path. Slower growth in government spending and prudent income policies (moderate increases in pensions and public wages, minimum wage reform) are expected to support competitiveness. (35) The minimum wage reform and the pension reform are expected to help address CSR recommendations from 2019 on the need to ensure minimum wage setting based on objective criteria, consistent with job creation and competitiveness. Reforms on restructuring of the public expenditure system (spending reviews) and the reform of the public sector wage system are expected to help address CSR recommendations from 2019 and 2020 on the need to improve the efficiency of public procurement and the quality and effectiveness of public administration. Moreover, the pension reform and the reform of special pensions will help address the CSR issued in 2019 on ensuring the sustainability of the public pension system and the long-term viability of the second pillar pension funds, while the tax reform and the reform of the tax administration will contribute to addressing CSRs from 2019, and 2020 on ensuring 12 CSRs considered ‘relevant’ are recommendations: i) adopted by the Council from 2019 onwards, ii) for which the Member State has not yet made ‘full’ or ‘substantial’ progress in addressing them and are not outdated (assessed as ‘Not Assessed / No Input to Add ’), as assessed in the latest European Semester surveillance exercise (available in CeSaR (europa.eu)), iii) not linked to purely fiscal SGP-related and iv) not covering the same challenge but in a rephrased manner. EN 13 EN  fiscal sustainability and strengthening tax compliance and collection. Most measures underpinning the extension of the adjustment period should also help address CSR recommendations from 2022 and 2023 on pursuing fiscal policies with a view to bringing an end to the situation of an excessive government deficit. (36) The plan ensures that the planned overall level of nationally financed public investment realised on average over the period covered by the RRP is maintained, as required by Article 14(4) of Regulation (EU) 2024/1263. Table 5: Nationally financed public investment in the plan (% of GDP) Average level over period Average over the covered by the 2025 2026 2027 2028 2029 2030 2031 duration of the plan RRP (2021 to (2025-2028) 2026) 4.1 5.3 5.6 4.8 4.3 4.1 3.6 3.2 5.0 Source: Medium-term fiscal-structural plan of Romania (37) Finally, the set of reform and investment commitments underpinning an extension can be regarded as consistent with the commitments in the RRP and the Partnership Agreement agreed under the Multiannual Financial Framework as required by Article 14(2), point (d) of Regulation (EU) 2024/1263. Namely, in accordance with the requirements of Regulation (EU) 2024/1263, each commitment is expected to operate in continuity and complementarity with the RRP or the Partnership Agreement of Romania’s European cohesion policy, and to respond to the CSRs, and to one or more common EU priorities. (38) In conclusion, the set of reforms and investments underpinning the extension of the adjustment period is assessed as fulfilling, taken altogether, the criteria in Article 14 of Regulation (EU) 2024/1263. As a result, the adjustment period can be extended from 4 to 7 years, as put forward in the plan. Other reform and investme