Банкеръ Weekly



AS TIME PASSES BY, CHANGES IN THE 2006 BUDGET BECOME LESS POSSIBLEIvaylo Kalfin was born in Sofia in 1964. He holds a master's degree in international economic relations from the University for National and World Economy in Sofia. In 1999 he obtained a second master's degree in international banking in Laughboro, England. He was a scholarship student under the British Chivning program and the German Marshall Fund of the United States. He worked for Machinoexport as well as in the private sector in the field of foreign trade, finance and consulting. From February 2003 till June 2005 Kalfin was President Georgi Parvanov's secretary on economic issues. He was a member of the 37th, 38th and 40th National Assemblies. He is married and has a nine-year-old daughter.Mr. Kalfin, you are among the authors of the economic platform of the Bulgarian Socialist Party (BSP), i.e. among those who outlined the commitments the left party would keep in case it entered the ruling of the country. On the other hand, the leader of the Movement for Rights and Freedom (MRF) Ahmed Dogan announced months ago that the next government was doomed to follow the track predetermined by Bulgaria's membership in the European Union (EU). Considering that, what do you think are the possible and real steps in the economic field that the future cabinet can make?- What Bulgaria's next government not only can but must do is set longer-term goals than the present ones. There are processes that simply don't bring results for four years. Therefore, as future members of the EU we must have a longer economic horizon. And must adopt an economic frame that is longer than the old one.The last two cabinets that ruled Bulgaria concentrated all their efforts on maintaining the financial stability of the country. In fact, the currency board system and the respective fiscal policy were all that the economic policy involved. This is what needs to be changed, while the monetary council and the budget stability should be kept, of course. It is time for conducting economic and social policy that results in a structure of the economy as competitive within the EU as possible.The comparison between the Bulgarian and the European economies shows that the main key lies in the productivity and competitiveness. Bulgaria lags far behind in this aspect. But these indicators are linked to the lower income, to the fear that competition will not be beaten and so on.Logically, the economic policy should be directed towards increasing the productivity, but not in the short term.What measures must be taken in order to improve the competitive power of the Bulgarian economy?- We don't need to invent any original methods in that aspect. Most of the measures are written in the EU Lisbon strategy and the European countries observe them - they adopt the necessary regulations, spend the resources and achieve certain results. Whereas here, in Bulgaria, the economic policy has no centre and no focus. This is what has to be changed.You are not going to give priority to some of the branches of the economy, are you?- These are horizontal policies that have to enter all branches. For example, information technologies, e-government, administrative service. The same is valid for the regional, transport and communication infrastructure. So, there is more than just pointing out two branches and saying they are most important.A quick look at the BSP program is sufficient to show that the left wing wants more of a state. Not just for the increased percentage of GDP redistribution by the government. At the same time, over 75% of the gross value added of the economy is produced by the private sector. How will the economy's competitive power be increased then?- When we talk about the increased role of the state, we must give a very clear definition. Which is - rule of law and conditions for all market participants to observe that law. It is exactly what creates the normal competitive environment.However, let me remind you that the program of the left stipulates redistribution of up to 40% of the expenses of the GDP. The 2004 figure was 42 per cent. Therefore, we propose redistribution that is benign compared to the one provided by the previous government. This is what measures the role of the state.But you promise a 20% growth of salaries in the budget sector and a considerable increase of the pensions and the social benefits. Where will that money come from? From the budget surplus accumulated by the cabinet of Simeon Saxe-Coburg-Gotha?- No, because the budget surplus is an extremely important item which should not be simply redistributed and spent. Its resources may be used for building a solid investment pillar in the pension system which will generate revenues to increase the pensions. This is by no means a threat to the financial stability.Almost all tax promises given by the socialists vanished in the last months and days and eventually the introduction of the zero tax on reinvested profit remained their only commitment. Will things remain the same in case BSP makes another attempt to enter the ruling of the country?- With regard to taxes, all that was written in the election platform remained unchanged. The problems of the tax policy do not relate to rates only. They also relate to the confounded normative regulation, to the huge rights of the officials who press the companies, and to the lack of political will to build an information system between the tax and customs administrations. The representatives of the business know that, too.It's also true that the current 15% tax on profit is among the lowest ones in the EU. We want to keep it competitive. If other countries go down to that level, Bulgaria may certainly reduce additionally the rate. But this is not the problem. There are about 20 or 30 companies that pay approximately 70% of the tax on profit revenues.In turn, the zero tax on reinvested profit relates to the concept that the state supports all companies that run out of investment resources. This is not going to solve the problem but at least creates conditions for the solution.As to the rates on personal incomes, the issues that remained unsettled in the failed project between the National Movement Simeon II (NMSII) and BSP correspond to our election intentions to keep the scale of personal income taxation unchanged. Meanwhile, the NMSII insisted on introducing a flat tax on personal incomes, something that we disapproved.However, the biggest problem of the taxpayers relates to social security payments which account for 42.7% of their income?- The left wing wants to reduce this percentage by 5% and even more, if possible. Before the elections there were a number of exotic proposals on behalf of the Union of Democratic Forces (UDF). For example, they proposed to reduce the total insurance burden to 25 per cent. But it means the whole pension system would make a U turn, because the budget must take up BGN1.5BN additional expenses. It is clear that this is not a working formula but an election firework that is pleasant for the ears.Bulgarian incomes are just 28% of the average European ones. How do you intend to make them equal?- That's true. And it's also true that the Bulgarian productivity is only 30% of the average one in Europe. It means that three Bulgarians produce as much as a European citizen does and respectively receive one third of his salary. So, the long-term solution of this problem is again associated with the competitiveness of the economy. This cannot happen quickly and is obviously an objective that should be set by the economic policy in a long-term perspective. However, it takes less time to find resources for increasing the income of people in the risky groups and also of those on whom the public administration can rely. Who was the author of the frequently repeated definition if there is fiscal possibility with which you practically delayed the 2% VAT reduction for some time in the future?- BSP has written it in its platform that the VAT reduction will be made when there is budget possibility. But the decrease of the tax will not result in lower prices. It will be just an additional alleviation for the producers. But during our principle talks, the NMSII insisted on writing if there is fiscal possibility everywhere. So, they are the authors of this concrete part of the text. Of course, there was a minimal rate reduction in their program, too. It cannot be considered revolutionary, because the value added tax is a major asset item of the budget.Are any changes possible with regard to the reduction of taxes and insurance payments or the increase of salaries and pensions? The 2006 budget procedure is actively going on and there is no government yet.- As time passes by, changes in the budget become less possible. The government in retirement worked very actively and in fact was the one to prepare the next year budget. You know, amendments to the tax legislation are adopted before the budget structure act. Therefore, how much the political powerlessness will last is not clear yet.Aren't you personally astounded by the fact that it took the left BSP and the liberal centre NMSII a couple of days to start talking in the same economic and financial language. Wasn't it too easy?- It wasn't easy, but it had to happen. It was a result of mutual compromises from both sides with the clear awareness that the establishment of a broader coalition was a political priority. That is why a solution was found in the economic and social field. However, the political solution appeared a problem. The reason is that the NMSII started as a centrist party but then changed into a right one.The left wing threatened it intended to reconsider some of the big privatisation deals. If you become part of Bulgaria's next ruling, will you fulfill your threats?- For all deals that involve misuses or violations of the law one should assume the respective responsibility. But it doesn't mean they must be totally reconsidered or cancelled. That may be possible in the Ukraine, but we live in Bulgaria. I don't mean nationalization or blocking of deals, but review of the procedures used.Do you think there are risks for the economy if the election of a new cabinet is postponed further?- The political process in the country is now advancing within the constitutional procedures. There are neither peculiarities, nor negligence. The problem lies in the insecurity that both foreign and Bulgarian investors feel. The business logically asks: Will there be a government and who will be its members?. The political uncertainty increases the political risk which in turn changes the investment plans. Or higher return is sought to compensate that risk. Or the risk might turn out higher than desired and thus might provoke change of the investment plans.And what's the situation with the alternative for new elections?- In the financial sphere a hypothesis is always considered in comparison with another one, not by itself. If there is a chance for creating a sufficiently stable government that would enjoy clear parliament support and follow a program that restricts the political risk, there is no point in announcing new elections. But if no such government can be established - even with a broader parliament majority and support, it's better to hold new elections in order to change the parliament configuration.There are three risks in this case that we should be aware of. First, social time, energy and resources will be wasted. Second, the results from the vote might be similar to the previous ones. The third risk, no matter how much right parties have been underestimating it lately, relates to the fact that Bulgaria's concrete engagements to the EU remain unfulfilled. I myself would not join those who keep saying that the report of the European Commission is not significant. It's true that we delay the implementation of our tasks and cannot expect a reaction other than postponing our membership for the future.Do you believe the current parliament will appoint a government?- I'd like to see a government appointed and I am among the people who do their best to let that happen. But a government cannot be set up at any cost.

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