Bulgaria’s caretaker government approved the 2023 Budget bill drafted by the Finance Ministry at a special sitting on April 28, featuring a modest growth target and a large projected deficit.
In a statement, the caretaker Cabinet said that the delay in approving the draft Budget was due to two parliamentary elections, in October 2022 and earlier this month, as well as the previous legislature’s inability to elect a government.
The draft bill projected a deficit of 6.4 per cent of the gross domestic product (GDP) for 2023, with the caretaker Cabinet blaming “political decisions and legislative changes adopted by previous National Assemblies” for the high target.
Speaking before the caretaker Cabinet’s sitting on April 28, caretaker Prime Minister Gulub Donev said that it would be up to the current Parliament to “find a solution to the problem.”
In its updated macroeconomic framework, which is part of the Budget package, the caretaker Cabinet listed several ways to increase revenue and reduce spending.
An increase in the value-added tax (VAT) rate by two percentage points to 22 per cent would raise 1.63 billion leva and an increase to the corporate tax rate by five percentage points to 15 per cent would raise 2.31 billion leva.
Other options included extending windfall taxes, imposed last year on energy companies due to high commodity prices, through the second half of 2023 (2.4 billion leva), raising the dividend of state-owned companies from 50 per cent to 100 per cent (1.72 billion leva), ending lower VAT rates introduced as an economy-boosting measure during the Covid-19 pandemic (503 million leva) and scrapping a 12 per cent pension increase in July (1.15 billion leva).
The high projected deficit has already been criticised by the two largest parties in the 49th National Assembly, with We Continue the Change-Democratic Bulgaria coalition co-leader and former finance minister Assen Vassilev saying that the bill could be rejected at first reading in the National Assembly, and amended before the second reading to provide for a three per cent deficit.
The Budget package envisions a consolidated fiscal programme with revenues of 65.8 billion leva and 77.7 billion in spending, while the deficit was estimated at 11.9 billion leva in real terms.
In 2022, revenue was 64.8 billion leva and spending was 66.1 billion leva, resulting in a Budget deficit of 1.3 billion leva, or 0.8 per cent of GDP, according to preliminary data. The deficit was well below the 4.1 per cent target set out in the 2022 Budget.
Economic growth in 2023 is forecast at 1.8 per cent, above the European Commission’s latest 1.4 per cent projection.
The draft budget sets the debt ceiling at 46.8 billion leva, or 25.3 per cent of projected GDP (up from 21.8 per cent in 2022), with the government allowed to issue 13.7 billion leva in new debt in 2023.
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