Romania's broad coalition government wins parliament confidence vote

By Luiza Ilie

BUCHAREST (Reuters) -Liberal Prime Minister Ilie Bolojan won a parliamentary confidence vote on Monday, ending months of political deadlock with a coalition government that aims to lower the EU's highest budget deficit to avoid losing its investment grade credit rating.

The European Union and NATO state has been rocked by political instability in the wake of a presidential election which was canceled in December and re-run in May, with market turmoil boosting borrowing costs and crashing the leu currency.

Bolojan's nomination to head a broad pro-European coalition government by centrist President Nicusor Dan, who ultimately won the divisive election at the detriment of the far right, comes after a month of political wrangling over the fiscal measures needed to lower the deficit.

While the coalition will have broad support - around 67% of parliament, all but three hard-right groupings - its endurance will depend on unpopular tax hikes and whether the four parties enforce agreed cuts to state spending.

"Some of these decisions will not be popular," Bolojan told lawmakers before the vote.

"But we must take into account that without the measures Romania would enter decisively into an area of fiscal uncertainty and risk losing touch with European development and higher costs for people and companies."

Finance Minister Alexandru Lazare said the government will discuss all proposed measures with the European Commission before approving them from August, adding a mix of spending cuts and tax hikes were needed to restore credibility.

The government plans to keep the main value added tax - which Brussels, ratings agencies and analysts said should be raised to lower the deficit - at 19% for now, while two lower 5% and 9% rates will be consolidated in a single 9% one.

The government aims to introduce a temporary tax on banks' "excessive profit" from 2026, and introduce new levies on gains from crypto currencies and social media platforms. About a fifth of public sector jobs will be cut.

Higher excise duties and property taxes, an increased dividend tax, taxing pensions higher than 4000 lei ($915) monthly and listing minority stakes in state companies on the bourse are among the proposed measures.

The government includes Bolojan's Liberal Party, centre-left Social Democrats, centre-right Save Romania Union and ethnic Hungarian party UDMR, with the four parties also backed by national minorities in parliament.

The leaders of the four parties agreed to rotate prime ministers before a 2028 parliamentary election, with Bolojan swapping with a leftist Social Democrat in April 2027.

The Social Democrats are Romania's largest party and a ruling majority cannot be achieved without them, but the PM rotation could be a destabilizing step as policies and positions are reassessed.

($1 = 4.3738 lei)

(Reporting by Luiza Ilie; Editing by Aidan Lewis and Toby Chopra)