Банкеръ Weekly

Briefs

LYUBOMIR DATSOV: THERE ARE REALITIES WHICH THE BUDGET CANNOT EVADE

A year ago your stance was that the 2005 budget was burdened with social expenses and the necessary economic reforms could not be made therefore. Will the situation be the same next year as well?
- Burdened is not the right word. The State, of course, has many functions and the social one is among the main ones. Expenses for social purposes are indispensable.The question is what is done with the money and if it is directed where it is most necessary. There are criticisms that the social allowances make people not look for a job. Such a problem exists indeed. That is why social assistance to the unemployed should be directed in such a way as to motivate them come out on the labour market.
There is already talk that the money for healthcare, education, and social policy won't be sufficient in 2006 again, especially on the background of the pre-election commitments of the rulers.
- I cannot comment the pre-election promises of the political parties. A governmental programme is under draft now and will be soon ready. But there are realities which the budget cannot evade. I do not agree with the definition insufficiency of resources which is again attached to the draft budget. Nobody has so far explained how the conclusion that the resources in question are not enough has been reached. If someone wants to spend huge amounts of money and they have not been released by the budget, it is only natural for him to claim that the money is insufficient. But from the point of view of the Finance Ministry it is important to see what services would be offered to the people and of what quality. Then it may turn out that the money is more than enough. Our stance on that issue has always been consistent: the taxpayers' money should be spent in the most efficient possible way.
Does that mean, according to you that the funds for healthcare, for instance, are not spent efficiently?
- Nobody has said yet why the expenses should increase through the public sector. I don't say that the money for healthcare is sufficient and that the services are of a good quality. That could be done through the private healthcare insurance funds. The people should realize it would be even cheaper for them to be insured in them instead of paying directly in hospitals.
The other big problem to be solved in order to strengthen the healthcare system is to stop the practice of paying money under the counter. No taxes are paid on that money, neither it goes to the hospitals budgets. A mechanism should be found for legalizing these payments and bringing them to the light. The system will be better structured then and the people will know how much to pay and what services they will get.
Will the 2006 budget really fix the fiscal status quo?
- What is the meaning of a budget of the status quo? If the understanding is that the budget is set within one and the same limits, then it might be true. But criticisms towards it are also the same, therefore they are criticisms of the status quo. There is no variety or new moments regarding the criticisms.
A budget cannot be judged by its framework. The size of the GDP, the level of deficit, etc. do not concern what the citizens get. These parameters concern the macroeconomic policy alone, i.e. the thing which nobody can see or touch but which generally specifies our lives for the years to come. This concerns the stability and the frame within which we live - inflation, economic growth, possibilities of ensuring new working positions, etc.
Are there any risks for the fulfilment of the projected revenues and expenditures, connected with the oil prices, US dollar's exchange rate, etc., included in the budget draft?
- Force majeure risks can never be foreseen to the sufficient degree. The Finance Ministry has always followed a consistent policy in that sphere, although we have been criticized for that. Of course, there are buffers in the budget. At least this is the well-known rule for releasing 90% (or 93% this year) of the Treasury's money. We believe this is a main guarantee for sustainability in case of force majeure circumstances in the economic development.
There is one more thing as well. Bulgaria has profited much over the last 15 years from its cooperation with the IMF. Thanks to the fund we have one of the best structured and modern taxation systems in Europe. It is structured so as to be able to undertake various types of shocks. If a strong negative phenomenon appears it is immediately compensated by another one that is positive. And if some revenues decrease due to external circumstances, others increase. In other words, the revenue and the expenditure side are always guaranteed. Apart from that, the currency risk was reduced as a result of the debt management. It has been largely minimalized and the Finance Ministry intends to follow in the same direction.
Has the incumbent Cabinet indeed found itself in a status quo regarding the budget procedure for 2006, as some BSP financiers claim?
- It cannot be otherwise. In any normal country the budget procedure starts at least a year or a year and a half before the finalization of the budget for the previous year. E. g. in two weeks the Finance Ministry will start tackling the budget procedure for 2007. Therefore, no matter which government is in power it will have to reckon with what its predecessor has set.
It became clear there was an argument between BSP and NMSII about the Natural Persons' Income Tax. NMSII's financiers believe that an additional reduction won't affect the aggregate budget revenues, while the head of the parliamentary Budget Commission Peter Dimitrov claims just the opposite.
- I would not like to comment Mr. Dimitrov's statements. The Finance Ministry has confirmed that the NMSII-proposed amendments to the Natural Persons' Income Tax are neutral from the point of view of proceeds into the budget. However, this is a matter of a confrontation between two philosophies.
Would it be neutral to the budget if it was planned that the value added tax (VAT) should be reduced by 0.5% in 2006 in order to open way for the fulfilment of the commitment for its reduction by 2%, undertaken by the ruling coalition?
- I can see no reason for the reduction of VAT specifically. I even think it is more logical for VAT to increase. The economic situation in this country is such that the VAT is an universal instrument and should go up. Its reduction at present would only make more difficult the already uneasy situation regarding the current account of the balance of payments. It would be nice when somebody speaks purely populistically to consider the effect of taxes on the country's macroeconomy and on its stability.
In that sense, reduction of which taxes wouldn't have a negative effect on Bulgaria's macroeconomic stability?
- Reduction of all direct taxes now has a positive effect on the current situation. Increase of all indirect taxes also has a positive influence. In order to avoid huge overfulfilment we have tried to make a maximally good assessment of budget revenues. It's a fact that the reduction of direct taxes cannot be compensated by indirect ones, although excise duties go up significantly. But it is something paid by certain groups of people, and not by all consumers. This is the tax which influences directly the aptitude to consumption, which is a main problem for the current account of the balance of payments.
How much more could budget expenditures grow if there are political claims or a danger of upsetting the passing of the new budget?
- This is a decision to be made by the National Assembly. Expenditures could increase twice or trice if Parliament wants that. This is a joke, of course. Everything is a matter of desired results. Otherwise, the budget is drafted in order to set economic growth targets, inflation rate, etc.

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