Sofia-based think-tank Institute for Market Economics (IME) is a long-time proponent of reduced government spending and, as in previous years, has presented its “alternative Budget” for 2016 on November 17, arguing that it was possible to reduce the deficit to zero.
Over the past three years, Bulgaria has run large deficits, partially due to the constant political crisis in 2013 and 2014, which had a negative impact on reaching revenue targets – but even this year, when Budget revenues are slated to exceed targets by an estimated 800 million leva, the planned Budget revision will add 900 million leva in spending, resulting in a higher deficit than planned, IME said.
The think-tank said that the Budget revision would raise the cumulative deficit for 2013/2015 to 7.4 billion leva, worse than the cumulative deficit recorded during 2009/2012 – 5.3 billion leva – a period that largely coincided with the “great recession” and subsequent recovery.
“The Cabinet’s three-year fiscal strategy for 2016/2018 not only is not ambitious enough, but is also seriously lacking in authenticity – every year features a consolidation plan, while balances are ultimately worsening. Deficit spending and accumulation of new debt is about to become a dependance,” the think-tank said.
In its version, reducing the payroll and current spending of the public administration by about 10 per cent would allow to compensate for the lower tax revenues – the IME has long argued for abolishing the taxes on dividend (now at five per cent) and deposit interest (eight per cent), while at the same time reducing tax incentives like food vouchers or the lower VAT rate in the tourism sector.
Other proposals are equally familiar: the sale of under-performing state companies, such as the state railways and postal services firms; pension and health care reforms to reduce the mandatory social security and healthcare payments to the state, redirecting them to private providers instead; as well as drafting detailed plans for law enforcement and judiciary reform, which would have no immediate impact on the 2016 Budget but serve to save money further down the line.
IME’s draft envisions lower Budget revenues at 32.7 billion leva, slightly lower than the Finance Ministry’s 33 billion leva. On the spending side, the think-tank’s proposal is to cut government expenditures by about 2.1 billion leva (from 34.8 billion leva to 32.7 billion leva), resulting in zero deficit, compared to the 1.8 per cent deficit in the Budget bill.
(Photo: Alessandro Paiva/sxc.hu)