Bulgarian Cabinet approves draft 2018 Budget

Bulgaria’s Government approved the 2018 Budget bill drafted by the Finance Ministry at a cabinet meeting on October 30, held the day before the legal deadline for submitting the bill to the National Assembly.

The draft Budget bill is the first one drafted by a Boiko Borissov government that has been described as “social”, which, in Bulgarian political parlance, means generous on the spending side, with extensive pay increases in several sectors. (Borissov first took office in 2009, just as the global financial crisis hit Bulgaria and his second government, in 2014, had to drastically rein in the spending of his predecessor Plamen Oresharski, who left office with a large Budget deficit.)

The 2018 Budget bill envisions a consolidated fiscal programme – which includes the state Budget, local administration budgets, healthcare and pension funds – with total revenues of 38.2 billion leva, up from the 34.9 billion leva currently envisioned for 2017. The initial estimates for 2017 set revenues at 35.4 billion leva.

The shortfall in revenue this year is mainly due to the amount of EU funds received by Bulgaria. Initially targeting 2.61 billion leva for2017, the Finance Ministry’s current estimates put the total amount at 1.37 billion leva. On the spending side, the amount of EU funds disbursed this year is currently estimated at 1.94 billion leva, compared to the 3.15 billion leva initially envisaged by the ministry.

Spending in 2018 will jump sharply, to 39.3 billion leva from 34.9 billion leva currently envisioned for 2017 (original estimates put it at 36.8 billion leva this year). Areas set to receive increased funding were education at 3.84 billion leva in total, an increase of 490 million leva compared to the 2017 Budget; healthcare with 4.71 billion leva, an increase of 485 million leva compared to the 2017 Budget; and social care spending, which will increase by 743 million leva compared to the 2017 Budget, reaching 13.07 billion leva.

The increased “social” spending did not appease the main opposition in Parliament, the Bulgarian Socialist Party (BSP), who said after the publication of the draft Budget last week that they would come up with their own “alternative” budget bill, promising to focus on the same areas of education and health care, as well as increased incomes.

The centre-piece of its proposal is set to be a progressive income taxation scale – the BSP, which spearheaded the introduction of the flat 10 per cent tax in 2007, has switched sides and no longer endorses flat income tax, instead campaigning in the parliamentary elections earlier this year on a promise to go back to proportional taxation.

According to BSP leader Kornelia Ninova, in this “alternative budget” income of up to 510 leva a month would be untaxed and the current 10 per cent rate would apply to monthly incomes of up to 3300 leva. Income above that figure and up to 10 000 leva would be taxed at a rate of 15 per cent and income above 10 000 leva would carry a tax of 20 per cent.

However, the BSP is yet to present its draft budget in full and it remains unclear whether the numbers in its proposal would balance out.

Back to the government’s Budget bill, it sets a deficit target of one per cent of gross domestic product (GDP) for 2018, or 1.1 billion leva. This year’s Budget Act set a deficit of 1.4 per cent, but the Finance Ministry’s current estimates envisioned zero deficit for the second year in a row.

Economic growth is forecast at 3.9 per cent, while this year’s GDP target is increased to four per cent, from 2.5 per cent envisioned in the 2017 Budget Act, as economic activity this year was pushed up by domestic consumption, the ministry said.

The 2018 Budget bill envisions increasing the minimum salary to 510 leva on January 1, in line with commitments made in previous years.

The draft budget lowers the debt ceiling to 23.5 billion leva, compared to the 23.9 billion leva figure in this year’s Budget. At the same time, the government is allowed to issue only one billion leva in new debt in 2018, compared to 1.2 billion leva this year.

(Bulgaria’s Council of Ministers building. Photo: Clive Leviev-Sawyer)



Alex Bivol

Alex Bivol is the Deputy Editor-in-Chief of The Sofia Globe.