Банкеръ Weekly



The 2005 Budget tripped over the first stumbling-block at the very start of its approval. This is a sure sign that the procedure for passing the State's financial constitution for next year will not go on easily and without difficulties. In Parliament there is already confusion when voting the package of tax laws, while syndicates and employers have already begun with their usual accusations about the philosophy of the budget matrix. Habitual predictions that the calculations of Finance Minister Milen Velchev would be attacked and changed many times have appeared, too. Observers have started betting if this year the Finance Minister will manage to master his opponents' yearnings. The situation regarding the approval of the 2005 Budget is somewhat different from previous years due to the fragile parliamentary majority and the forthcoming elections. The first stumbling stones are already visible: with the vote of only one MP from the NMSII the National Assembly accepted a reduction of the value added tax (VAT) from 20% to 18% as of next year. A draft bill of the People's Union was also passed among the confusion, stipulating the introduction for differentiated VAT rates for certain groups of goods. If VAT goes down by 2% budget revenues will drop by BGN418MN. Such a decision can be supported only by political forces which do not intend to take part in the parliamentary elections in 2005, it became clear from Mr. Velchev's statements. In his view, the budget is full of tax breaks, due to which the Treasury has already been deprived of BGN360MN: the reduction of profit tax from 19.5% to 15%, the lowering of natural persons taxes, the introduction of elements of family income taxation. The budget marathon started with the statement that the 2005 Budget has been planned as a budget of speeded growth, progress and stability.According to the Government's estimates, the country's economic growth will be between 5% and 5.5 per cent. It will depend on the petrol prices on international markets in 2005. Inflation will go down from 2004 and will be around 3.6% next year. The deficit projected in the budget will be 0.5% of GDP, which is a record low level for all years of the transition period. The Treasury's calculations have been made at an estimated USD:BGN exchange rate of 1:1.7. Tax revenues are expected to grow by 13.5% compared to 2004, despite the reduction of the duties. That will be a result from the economic growth and the expected improvement in the tax collection. According to Government's calculations, budget revenues will amount to BGN16.067BN and budget expenditures - to BGN16.063BN. However, analysts claim that exercises to increase the revenues are possible, as the 2004 revenues had been deliberately lowered. The extra revenues collected by August 31 alone amount to nearly BGN1BN, which is almost 7% above the plans.The political council of the National Movement Simeon II already declared the regional policy, social sphere, education, and healthcare priorities for 2005. These are the most generous items in the 2005 Budget. Social insurance will get 13.5% of the GDP. Healthcare will receive 4.3% and education - 4.2%, which is BGN170MN above the level obtained during the current year. For example, the money planned for education is up by 10% compared to the amount planned for 2004. Five per cent of the GDP will support the defence and security. Salaries in the budget sphere are expected to grow by 6% which is related to the increase in production. The minimum working salary will be up by 25% and will reach BGN150. The pensions indexation is expected to be 7 per cent.The 2005 Budget investment expenditures exceed by 21% those stipulated by the 2004 budget and amount to BGN1.609BN. About 24% of the capital expenses will be provided by PHARE, ISPA, and SAPARD. The financial minister remained too careful in forecasting next year's revenues and expenses, experts comment. The budget is said to be implemented easily, promising surpluses of at least BGN800MN. The reserve alone amounts to BGN323.6MN. Besides, the expenditure level goes down by two points. On the other hand, non-interest expenses are planned to go higher by BGN949MN and reach BGN14.827BN.

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