/ world today news/ The Ministry of Finance (MOF) published a long message with the reasons why President Rosen Plevneliev should not veto the budget update.
Yesterday, Finance Minister Petar Chobanov himself visited the head of state in an attempt to convince him that the change in state finances is positive. Subsequently, Plevneliev announced that he would rule on the budget within two days, because the text of the bill had only arrived yesterday.
“A veto of the budget on expediency and with purely political motives, if it is imposed, will be a precedent”, the MoF stated today and presented 8 arguments why the president should give the green light to the bill.
Here is the full text of the opinion of the financial department:
In connection with a possible veto by the President of the Republic of Bulgaria on the Law on Amendments and Supplements to the Law on the State Budget of the Republic of Bulgaria for 2013 (ZID of the State Budget of the Republic of Bulgaria for 2013), we would like to note the following:
The update of the Law on the State Budget of the Republic of Bulgaria for 2013, adopted by the National Assembly, is related both to the unfavorable development of the main macroeconomic indicators since the beginning of the year, and to the risks for the implementation of the revenue side of the budget, especially in the case of tax revenues , despite the urgent measures taken by the government to improve the work of the revenue administrations in order to reduce the negative effects on the budget revenues of the low collection and of the existing vicious practices along the lines of smuggling and the size of the underground economy.
At the same time, there is a lack of flexibility in the expenditure part of the budget as an opportunity to respond to the pressure on the budget position from the looming revenue shortfall. Moreover, the analyzes show the pro-cyclical nature of a fiscal policy for the economy, expressed in a strong limitation of spending, which leads to a further contraction of collective consumption and a negative impact on the already low economic growth of the country.
The lack of spending buffers and opportunities to limit and restructure spending after the middle of the year require an urgent increase in spending, and only for the most urgent needs related to repayment of arrears, as well as to provide additional resources for social assistance activities and to ease the burden on electricity consumers from the development of renewable energy sources.
The reflection of the expectations of negative effects on both the revenue side and the expenditure side on the budget balance under the consolidated fiscal program necessitates an adjustment of the budget position, with the deficit reaching 2.0% of the estimated GDP, but remaining within the legally permissible limits for this indicator and does not threaten fiscal stability.
Postponing the decision on the budget update at this stage and waiting until the autumn of this year will have a negative impact, both on the budget for this year and on the budget procedure for 2014 – the preparation of the state budget for 2014 and of the update of the medium-term budget forecast for the period 2014-2016, especially since even the reduced fiscal targets and indicators in the proposed budget update are difficult to achieve and there are risks of non-fulfilment.
Possible consequences of a possible veto
If vetoed and delaying or canceling the update, it would cause serious difficulties for the budget process. Responsibility for meeting urgent social needs and regular payment to businesses would be transferred to the presidential institution. Intervention in the budget policy would cause an impossibility to implement the government program and an impossibility to meet the expectations of the public, some of which are particularly sensitive and important.
Firstovercoming the possible veto can be expected in September, which suggests that the updated budget will enter into force in the month of October at the earliest.
In the event that the planned additional funds in the amount of BGN 40 million are not approved, the implementation of the MTSP budget for 2013 and the payment of social benefits by the end of the year will be put at risk. The funds are necessary to ensure social payments for the most vulnerable groups of citizens.
The biggest shortage of funds for financing the rights of people with disabilities regulated by the Law on the Integration of People with Disabilities and the regulations for its implementation is the greatest. The provision of additional funds is an effort on the part of the government to guarantee these rights and provide socio-economic protection to the most vulnerable group of citizens. In addition, the non-acceptance of the update will deprive of an increase, as of August 1 of this year, of the amount of the monthly supplement for raising a child with permanent disabilities from BGN 189 to BGN 217. In this way, 22,000 children will be prevented and their families to receive an increase of BGN 28 per month for this type of supplement, which means at least no additional support in the months of August and September of BGN 56 for each child. If the veto is not overcome, they will not receive BGN 140 per family until the end of the year and will be unfairly deprived of this gesture.
The GERB government’s policy of freezing such badly needed welfare payments will continue for the fourth consecutive year.
Secondworkers will not receive vouchers for food, cut in the 2013 Budget by BGN 40 million. This additional support is especially necessary for them due to the upcoming autumn-winter season, when their expenses increase. The quota is currently exhausted due to miscalculated budgeting. This will also deprive employers of the opportunity to fulfill their intentions in terms of solidarity and corporate social responsibility.
Thirdthe unemployed from vulnerable groups, who are a risk contingent, will not receive an additional BGN 8 million for employment programs. Deprived of support will be young people, people with disabilities and persons of pre-retirement age.
Fourththe state will not be able to become a correct payer to businesses again, as there are no budgeted funds to pay arrears to businesses. Under this hypothesis, it is likely to repeat the situation of 2009, when the state did not repay debts to businesses in large amounts, which affected the deterioration of the budget position on an accrual basis and a procedure for excessive budget deficit was opened against the country.
fifth, it will not be possible to return the overdue VAT, which at the beginning of the mandate was in the amount of BGN 320 million and burdens the budget with excess interest costs. The business will not receive a life-giving sip of liquidity to be able to think about investment and development.
Sixthe budget procedure for 2014 will be blocked in the absence of a reliable basis for determining sustainable fiscal goals in the preparation of the state budget for 2014 and the update of the medium-term budget forecast for the period 2014-2016.
Seventhgiven the expected low size of the buffer in the fiscal reserve at the end of 2013 and the exhausted legal possibility for a new debt issue in the current year, in the first months of 2014 there will be liquidity difficulties related to debt repayments in the amount of approx. BGN 450 million and advance payments for direct payments in the amount of over BGN 1 billion.
If the limit for newly assumed debt is not increased from BGN 2 to BGN 3 billion, we risk that at the end of the year the level of the fiscal reserve will be below the level of BGN 4.5 billion regulated in the 2013 ZDBRB. If the current limit is maintained for new debt, the MoF estimates that the level of the FR at the end of the year will be BGN 3.9 billion, and in the first quarter of 2014 it will be in the range of BGN 1.6-3.5 billion, which will force demand of emergency financing in 2014 in order to preserve funds from autonomous funds in the fiscal reserve – for example, the Silver Fund. In turn, this will lead to an increase in the cost of servicing debt issued at higher interest rates.
The increase in the limit for newly incurred debt from BGN 2 to BGN 3 billion will not lead to a higher level of debt than BGN 14.6 billion at the end of 2013, given the repayment in August of this year. of the issue of 6-month treasury bills in the amount of BGN 800 million. The main reason for the increase in the limit for assuming new government debt is the unplanned issue in the issuance calendar of the MoF of BGN 800 million, which legally exhausted the possibilities for flexibility in the debt financing of the budget.
The provision of the new §14a of the PZR of ZDBRB for 2013 provides an opportunity to diversify the markets in which new government debt can be placed through the use of an optimal combination of debt instruments in the amount of up to BGN 1 billion. or their equivalent in another currency. In this way, the assumption of additional debt financing can be carried out both in the domestic and foreign markets or in a combination of both markets. The ability to issue foreign markets has existed in all annual budget acts since 2001 (and in years with budget surpluses), except for 2009 and 2013.
A possible veto will deprive the government of the possibility of using instruments for debt financing of the budget and may lead to reaching critical levels of the fiscal reserve.
Eighth, with regard to the funds under the Structural and Cohesion Funds, the European Commission (EC) is committed to reimburse within the relevant calendar year all costs that the member state declared (certified) by the end of October of the same year. However, this commitment is conditional on the EC having the financial resources to make these payments. In the spring of this year, a joint letter was received from several European Commissioners, including the Commissioner of the Directorate-General for Budget, where we were informed that the EC would most likely not be able to fulfill its commitments under the Regulation to recover the certified funds within two months due to serious liquidity problems With the partial update of the EC budget for 2013, the risk of non-payment of certified expenses was minimized, but it still exists.
The risk of non-reimbursement of the costs, which Bulgaria will certify by the end of November, is significantly higher. Traditionally, the previous three years, the EC reimbursed Bulgaria for the costs certified in November, although there is no such commitment formally.
The possible delay in the recovery of funds from the EC may further worsen the parameters of the budget in terms of revenues and fiscal reserve.
In summary, the current update of the Law on the State Budget of the Republic of Bulgaria is imperative and timely, it does not contradict the constitutional and legal provisions in the Republic of Bulgaria. It is not a precedent in budgetary practice, but vetoing the budget on expediency and with purely political motives, if imposed, will be a precedent.
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