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Romania’s new PM dogged by old election promises

Romania’s new prime minister made his first official trip abroad to Brussels this week, keen to escape backlash over a controversial tax plan that has marred his first days in office.

Mihai Tudose — the second prime minister from the ruling Social Democrats (PSD) in six months — has faced criticism for a tax hike his party proposed for companies and high earners that's seen as a major U-turn from the tax-cutting, wage-hiking platform that helped the PSD win 46 percent of votes in December’s parliamentary election.

Backed by a strong majority in parliament, with no elections scheduled and riding on the highest economic growth in the EU, Tudose’s government should face a smooth ride. But Romanian politics rarely follows the script.

The reason behind the tax U-turn was "the protest," said Otilia Dhand, senior vice president at the consultancy Teneo Intelligence. "The PSD had to backtrack [on the decree that sparked the protests] and make sure they ensure a sustainable level of support” by ensuring that election promises were fulfilled. And for that, the PSD needs more money in the public purse.

The protest in question rocked Romania in February. Hundreds of thousands took to the streets against a government decree that could have seen many politicians and senior public officials avoid prosecution for graft.

In exchange, he said he hoped the European Commission would end a monitoring scheme on corruption and judicial reform it runs in Romania by the time his country takes over the rotating presidency of the Council of the EU in early 2019.

But while Tudose was in Brussels promising not to rock the boat, his party leader Liviu Dragnea was fighting fresh corruption allegations back home. Dragnea is accused of having connections to a private company that's been doing work for public authorities, accusations he denies. Dragnea would likely be prime minister himself if it weren't for a suspended jail sentence that prevents him from taking on the role. He remains the most powerful man in the PSD.

Tudose, 50, was appointed as prime minister in late June, following the ousting of Grindeanu. Tudose was economy minister in Grindeanu's cabinet but resigned before the no-confidence vote against his former boss, as did most of the cabinet.

“The PSD has a tall election order that they have a problem fulfilling,” said Dhand. She added that plans to finance pension and public wage increases have never been fully costed, which in part explains the controversial new taxes the party wants to impose, which would see turnover rather than profits subject to taxation.

The tax plan already looks dead in the water. “It is becoming more and more clear that the tax cannot be introduced as such,” Tudose said on Tuesday in Brussels.

He also promised to keep in check Romania’s budget deficit, which the European Commission warned in May would overshoot the 3 percent of GDP limit this year. “The main risk to the outlook is the possibility of a further fiscal stimulus in line with the government program, which may boost domestic demand in the short-run, but at the expense of posing additional risk to the sustainability of public finances,” the Commission said.

In 2016, Romania's GDP grew by 4.8 percent — an eight-year high — but it would not continue at the same pace without “structural reforms to support competitiveness,” the Commission said.

Tudose was keen to talk about more positive news during the Brussels trip, however, telling reporters that some €600 million in European funds would start flowing to Romania in the next few days, to be used for infrastructure and environment projects.