Bulgarian Cabinet approves draft 2019 Budget
Bulgaria’s Cabinet approved the 2019 Budget bill drafted by the Finance Ministry at a special sitting on October 28, although it was unclear why it chose to sit at the weekend, given that the deadline for submitting the bill to the National Assembly is October 31.
Speaking at the start of the Cabinet sitting, Prime Minister Boiko Borissov described the bill as “one of the most ambitious” budgets in the country’s post-communist history and labelled critics of his government as “practically opposing sustainable development and the Bulgarian economy.”
Building up on this year’s budget, the bill envisions further pay increases in several sectors, most notably in the education sector, with an increased allocation to the healthcare sector as well.
The 2019 Budget features a consolidated fiscal programme – which includes the state Budget, local administration budgets, healthcare and pension funds – with total revenues of 43.9 billion leva. By comparison, the 2018 Budget Act targeted revenues of 38.2 billion leva and is currently on track to reach 39.2 billion leva.
Borissov credited the improved collection by the national revenue agency and law enforcement efforts to cut down smuggling and tax evasion for the higher revenue side of the draft Budget.
One much-debated provision of the new Budget is the increase in the maximum monthly amount on which mandatory social security contributions are owed – from 2600 leva to 3000 leva. The measure is estimated to affect a total of 148 000 high earners.
The Finance Ministry did not provide an exact estimate of how much additional revenue will be generated (the formula remains unchanged, with part of the contributions paid by employers and part by employees), but calculations by employer organisations put it at about 227 million leva.
The employer groups, which were critical of the measure, said that the actual impact could be much lower because it might encourage some companies (in particular in the IT sector) to move high-paying jobs out of Bulgaria, while some employees could be tempted to declare lower incomes and become part of the grey economy.
Budget spending in 2019 is set to increase more than the revenue projections, to 44.5 billion leva. By comparison, the 2018 Budget Act set spending at 39.3 billion leva, but current projections for the full year show it falling short of the target, reaching 38.6 billion leva.
This is due in part due to a shortfall in capital expenditures, such as several delayed defence acquisition projects and lower-than-projected utilisation of EU funds – in the latter case, government co-financing would be rolled over to future years.
Areas set to receive increased funding were education at 4.2 billion leva in total, an increase of 359 million leva compared to this year’s Budget; healthcare with 5.26 billion leva, an increase of 545 million leva compared to the 2018 Budget; and social care and pension spending, which will increase by 874 million leva compared to this year, reaching 13.95 billion leva, with a 5.7 per cent pension hike scheduled for July 1.
Borissov also singled out defence spending, set to increase by 331 million to 1.71 billion leva, or just short of 1.6 per cent of GDP, saying that Bulgaria was prepared to meet its Nato-mandated two per cent threshold for spending on defence by 2024.
Predictably, the increased spending in the draft Budget did not go far enough for the opposition Bulgarian Socialist Party (BSP). Once again, the party announced plans for an “alternative” budget, with a progressive taxation scale – the BSP, which spearheaded the introduction of the flat 10 per cent tax in 2007, has made a U-turn on this topic in recent years.
Last year, its promise for a detailed Budget proposal never materialised and this year’s proposals, so far, appear to focus on certain specific policy areas, without a complete Budget framework for context.
In terms of macroeconomic targets, the 2019 Budget bill envisions a deficit of 0.5 per cent of gross domestic product (GDP), or 600 million leva. This year’s Budget Act set a deficit of one per cent (1.1 billion leva), but the Finance Ministry’s current estimates envision a surplus of 0.5 per cent (591 million leva).
Economic growth in 2019 is forecast at 3.7 per cent, while this year’s GDP target is lowered to 3.6 per cent, from 3.9 per cent envisioned in the 2018 Budget Act.
The bill stipulates increasing the minimum salary to 560 leva on January 1, in line with commitments made in previous years. The three-year macroeconomic forecast also envisions further raises to 610 leva in 2020 and 650 leva in 2021.
The draft budget lowers the debt ceiling to 22.2 billion leva, compared to the 23.5 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 2019, same as this year.
(Bulgaria’s Government building, photo: Clive Leviev-Sawyer)