With the extraordinary measures, the government hopes to collect another BGN 6 billion.
With a reduced tax, only bread, flour, baby food and books will remain
The entire profit of state-owned companies will go to the budget, the state will tax all companies with an additional one-time tax, the lower VAT for some goods will be abolished. The excise duty on e-cigarettes is being lifted and returned to electricity.
These emergency measures, which must fill the budget, were adopted by the government on Wednesday, announced Finance Minister Rositsa Velkova. According to her, with a reduced VAT, only bread, flour, baby food, books and newspapers will remain. This means that from July 1
the full amount of the tax is refunded for gas and heating,
which may lead to their increase in price. The excise duty on electricity and natural gas was canceled until June 30, 2025, in order to moderate their price increase.
The one-time tax is currently on the excess profits of energy companies that work with oil, gas and coal. It was introduced under the European directive, and in Bulgaria it is 33%. The state hopes to collect BGN 2 billion from it, of which BGN 700 million is expected to come from Lukoil. However, other companies may also be included in the taxation if they have accumulated excess profits.
In total, from all the planned measures, the state expects to collect an additional 6 billion BGN.
If they are not implemented,
there is a risk to the financial stability of the state,
specified Velkova. In a report to the ministers, she points out 7 risks facing Bulgaria, including the possibility of changing the exchange rate of the leva against the euro. (Who are they – see below).
On April 3, the official cabinet will announce for public discussion the budget for 2023. The deficit in it will be 3%, but to achieve this, spending will be cut.
Ministries and departments will be able to spend 90% of their money,
and capital expenditure will not be diverted for other purposes. Money for investments, business trips, representative needs, and bloated states will also be reduced.
Companies will be required to pre-declare VAT transactions in order to better plan revenues.
All measures are being taken so that there is money in the state and pensions can be indexed by 12.6% according to the Swiss rule from June, Velkova specified.
There will be a 10% increase in budget salaries only where they have not been raised so far. In order to be stimulated, the two revenue agencies – the National Revenue Agency and the Customs, will receive a 15% increase in remuneration for 100% implementation of their plans.
The problems with the budget came because of the significant expenses voted in various laws by previous parliaments, Velkova states in the report. The most money was needed for the increase in pensions and social payments. Because of them, the budget balance worsened and the deficit could reach 7% of GDP. In addition, there was a risk that Bulgaria would not be able to provide co-financing for the European investment programs.
Seven risks facing Bulgaria
1. Maintained fiscal sustainability is seriously deteriorating in the medium term.
2. The structure of expenses is changing in favor of the permanent ones for social payments and rewards and lack of flexibility for dropping existing ones and implementing new policies and programs.
3. The risk of including our country in a procedure for an excessive budget deficit is increasing already on the basis of forecasts for violation of fiscal rules, which gives rise to obligations to take immediate, corrective measures, the failure of which may lead to sanctions from the EC, including h. and suspension of payments.
4. Postponing for an indefinite time the country’s accession to the euro zone or setting conditions for changing the currently fixed exchange rate of the leva to the euro.
5. Probability of deterioration of the country’s credit rating.
6. An increase in the cost of debt financing and difficulties in issuing external and internal loans, which will create liquidity problems for financing budget expenditures, as well as lead to a significant increase in interest costs for debt servicing. In this scenario, our country may have to use a loan from the IMF, which will also impose restrictive fiscal requirements as a condition for granting the loan.
7. If the outlined negative tendencies for the deficit are maintained, the possibility of approaching the upper limits of the debt criterion of 60% of GDP at an accelerated pace increases.
BNB reassures – change of the leva rate is not possible
What was written in the report of the Minister of Finance Rositsa Velkova to the Council of Ministers, that there may be a change in the exchange rate of the leva against the euro, if there are no additional revenues in the budget and an excess deficit is reached, caused a sharp reaction from the BNB. In a statement from the central bank sent to BTA, it is said that such claims are “incompetent and irresponsible”.
The central bank also states that no talks have been held with the Ministry of Finance regarding a possible change in the exchange rate and that such a change is impossible.
International foreign exchange reserves are at their highest level for the last 30 years, are categorical from the BNB. It is with them that the levs are secured in circulation and the stability of the currency board is guaranteed.
Milen Velchev, former Minister of Finance:
It is still possible to avoid the dangers
I’m not surprised, the obvious is confirmed. Revenue collections cannot compensate for dramatically increased costs in such a short time. There is no way to spend money that exceeds revenue and not end up with an increase in the deficit and the debt burden.
The caretaker minister deserves support for issuing a timely warning. It is still possible to cut costs, restructure and avoid these potential dangers. Let’s hope the new parliament doesn’t vote for another “wedding budget”, where everyone bids to please the people, and thus costs will increase again.
Simeon Dyankov, former Minister of Finance:
The measures are good, but they should also stop the aid for business
The movement of income and expenditure for the first two months of the year shows a possible annual deficit of 7%. The decision to return to 20% all reduced rates of VAT and for taxation of excess profits is correct. All energy subsidies for businesses must be ended.
We have not had such a high deficit since 1998, i.e. 25 years ago. In fact, the even bigger problem is what comes after 2023, forecasts and policies will need to be changed for the next two years, for which there needs to be a regular cabinet.
Vladislav Goranov, former financier Minister:
It will take years to recover
I am not surprised by the exported data. They are very close to the estimates presented by the Ministry of Finance in August 2022, and also in the presentation of the so-called extension budget. It is good that the caretaker government raises this issue in time. I have repeatedly warned that quackery in the management of public finances inevitably produces results. The consequences of the decisions taken in 2021 and 2022, measured by tens of billions of deficit and respectively debt, will be overcome for years.
