Банкеръ Weekly

Briefs

2007 BUDGET BEGINS BY SHORT PASSES

Premier Sergey Stanishev made public during the week the macro framework of the budget for 2007 - the first year of Bulgaria's eventual EU membership - after the summit of leaders of parties from the BSP-NMSII-MRF ruling coalition. This act of fiscal transparency on the part of the Cabinet is praiseworthy because it enables the companies and citizens orientate to a certain extent in the Government's financial policy for next year. But it's also true that the budget procedure for 2007 started back in the autumn of 2005, i.e. some ten months ago. In that sense PM Stanishev's statement could had been comprehensive and concrete. And what was heard is just a short pass to what will eventually happen in the fiscal sphere.
Taxes will be reduced, but details are yet to be specified, Premier Stanishev said. Profit tax might go down from 15% to 12% and insurances to be cut down by another 2-3 per cent. Reduction by half of the corporate tax in case of reinvestment for which the MRF insists is still being discussed. For the time being the PM just declared that the tax-free minimum will go up by BGN20, from the present BGN180 to BGN200. As a result the Treasury will be deprived of BGN150MN. Calculations also show that BGN450MN less will enter the budget due to the lower proceeds from value added tax (VAT) as a result of the changed regime of imports and exports after Bulgaria joins the EU.
PM Stanishev pointed out that the incomes policy is a priority of the Cabinet, but did not specify when the minimum pensions would be raised. Several months ago Social Minister Emiliya Maslarova insisted for a 4-5% increase of the lowest pensions which are presently BGN150 as of July 1, 2006. However, that date has not been finally fixed yet. Another question is if and how much the minimum wage will be raised as of next year. The leap will be probably BGN10 and the minimum wage would thus reach BGN170.
The 2007 draft budget projects foreign direct investments of BGN2.7BN. In Premier Stanishev's words that will be a considerable increase from this year. Foreign capitals of EUR722MN entered Bulgaria within the first quarter of 2006, up from EUR392MN in the same period of last year, at that without counting the privatisation of the Varna thermoelectric power plant.
PM Stanishev's Cabinet plans to redistribute less than 40% of the gross domestic product (GDP) next year. According to calculations, budget revenues will amount to 41.7% of GDP, and expenditures will total 40.9% of GDP. A budget surplus of 0.8% has been projected. However, if the expenditures are reduced by the projected fee for EU membership (BGN624MN or 1.2% of GDP), they will be considerably less than 40% of GDP, as planned in the coalition agreement and the Government's programme for ruling.
GDP will total BGN51BN in 2007, including a 5.8% growth. The budget has been calculated on the basis of 4.4% average annual inflation rate and a 11.8% deficit. The Cabinet expects proceeds from the EU structural and agricultural funds together with those from the pre-accession PHARE and ISPA programmes to reach 2.1% of GDP. In 2007 the coalition which took Bulgaria's ruling in August 2005 (the macro framework being prepared by the former government of NMSII and MRF) will be fulfilling its first budget, prepared by itself. That is why it will make possible the realization of our pre-election programme to the maximum extent, PM Stanishev said.
Finance Minister Plamen Oresharski insisted on more control on the part of Parliament over current expenditures. Experts from his ministry are ready to implement the sectoral and programme attitude in preparing the 2007 budget. Thus, each minister will be individually specifying the distribution of money in the respective sector on a principle basis and within the framework of projected expenses.

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