/ world today news/ the chairman of the Bulgarian Chamber of Commerce Bozhidar Danev commented to “Standard” the proposed budget update by the “Borisov 2” cabinet. He also answered the questions about how the state should participate in solving the problem with KTB and what are the most urgent reforms that the new government should start with.
The cabinet should start reforms with the administration and the pension system
– Mr. Danev, are you satisfied with the budget update proposed by the new government?
– The proposal is now much better than that of the official cabinet. Attempts have been made to reduce the budget deficit, although far from the desired framework of 3%. The proposed deficit of 3.7% of GDP carries the risk of extremely high economic and financial fines for our country after its inclusion in ERM2.
– What remarks do you have in the correction in the income and expenditure part of the budget?
– There is not much freedom in the revenue part. But we welcome the intentions of the Ministry of Finance to return the placement of measuring instruments to the path of the main contributor of excise taxes in the budget – fuels. This will also improve VAT collection. The decrease in budget revenues is the result of three main factors. Internal ones are serious deflation and limited consumption, especially of more expensive goods, where VAT is also higher. The external factors are geopolitical – the events in Ukraine and the collapse of fuel prices. Just two months ago, the price of a barrel of oil was $116. Futures are currently down to $73 and a long-term decline in fuel prices is looming. On this occasion, the BSK proposed to the drafters of the budget for the first time in 2015 to provide for hedging of the budget revenues due to geopolitical events, such as the movement of oil prices.
As for the expenditure part, I would like to remind you that the Law on Public Finance states categorically that when the revenue part of the budget is reduced, the expenditure part must also be reduced by the same amount. Unfortunately, instead of a reduction, we see an increase in spending, albeit more modest than the caretaker government option. This increase is nearly BGN 300 million, mainly related to the new law on the Ministry of Internal Affairs, which increases the costs of this department. We proposed in the final regulations that this entry of the law be moved in 2015. I.e. not burden the costs now with these additional millions.
– How will you comment on the proposed solution to the KTB problem?
– This is the third main point in the budget update – the financing of the KTB, which is directly related to the high deficit. There are legislative changes planned, such as the Deposit Guarantee Fund Act, which I predict will result in many lawsuits. And I wonder who will bear the costs of these cases and eventual convictions? They are primarily related to retroactive actions, due to which the cession transactions may be declared null and void. Something very important – the state plans to provide a loan of BGN 1.6 billion for the shortfall in the Deposit Guarantee Fund. As no one made a normal calculation that it is not necessary for all guaranteed deposits of BGN 3.6 billion in KTB to be insured as a whole. Because it is explicitly stated in the law that at the time of payment it will be specified whether the deposits have the right to be guaranteed. Because they may have preferential interest rates, belong to related parties, be used as collateral, etc. In addition, no one has calculated that a large part of the guaranteed deposits that will go to 10 or 5 banks may not be downloaded. Many people will prefer to leave them as deposits in the respective banks, which the banks will be happy with. In this situation, it is better for the state not to take a loan of BGN 1.6 billion or BGN 2 billion to give to the fund. And in the updated budget, the total new debt is proposed to increase by BGN 4.5 billion, which will increase the credit exposure of our country to a serious 28% of GDP. This practically creates a different image for us, destroys the good reputation that we are a country with high financial stability. This will repel foreign investors. It is better for the state, instead of taking out a loan, to give guarantees to the fund and it will issue a bond loan that can be bought by the banks themselves. There are many options to solve the problem of CTB – for example, lending from the fiscal reserve, in which there are enough funds, without having to go to the market. This reserve has already granted BGN 1.3 billion in loans to the banking system, and by November 30 it could get them back.
– Did you propose these options to the Ministry of Finance?
– Yes, we were told that the best option is to submit our proposals between the first and second reading of the law in parliament. Businesses will insist that the state not be allowed to enter into a criminal procedure because of an excessive deficit. The less the state is involved in the solution to the KTB problem, the lower the risks. However, we are worried about another entry in the budget update – it is envisaged that the Council of Ministers will make decisions on its own whether to give or take new loans to solve the KTB issue. For us, this is an unconstitutional provision. Such opening of the door should not be allowed.
– After the update of the budget for this year, the budget for 2015 is on the agenda. What emphasis will the employers’ organizations place when discussing it?
– Again, the main thing is for the budget deficit to be below 3%. The government, adhering to its program declaration, must start the reforms immediately. First, those in the administration and in the pension system, because they will have a quick economic and financial result – budget costs will drop sharply, the burden on business will be reduced. For the administrative reform, we now have a deputy prime minister and we are very happy.
Undoubtedly, the shrinking of the administration will lead to an increase in unemployment, but after all, the majority of these people are educated and could find other employment, since there is a hunger for more skilled labor. There cannot be a continuous increase in salaries in the public sector with a meager budget. This also applies to deputies, ministers. Even their wages should be reduced by the rate of deflation. Or with the reduction of the revenue part in the budget.
– Am I to understand that employers will oppose an increase in the minimum wage next year?
– Of course. This is pure socialism, not to say communism, for the state to continuously set the minimum wage, and at a time when the GDP is not growing at this rate. It is another matter if budget revenues increase or GDP increases without deflation. Intentions to increase the minimum wage, to increase insurance, to remove the flat tax are counterproductive for the healthy development of the state.
– How do you see the reform of the pension system?
– It must be multi-step. Some of the changes are very difficult, but they must be done – reform of the TELKs, where huge funds are leaking, the abuse of sick leaves, raising the retirement age in the first and second category of work together with revising the categorization according to the occupation place. The state must finally begin to translate real health contributions for those it provides. To eliminate all social costs from the funds of the NOI. Some extreme measures may also be introduced – when a civil servant is caught with corrupt practices, he will be immediately deprived of his retirement privileges. Thus, for example, the problem in the USA has been solved.
– How will you comment on the measures proposed by the advisory board for pension reform to criminalize insurance evasion and higher fines for non-payment of contributions?
– My view is that it is not business sanctions that will increase collections. There must be sanctions against the administration that does not collect the receivables, that does not do its job.
– Do you think that the merger of the National Revenue Service and Customs is correct?
– An extremely useful measure because we are witnessing very serious smuggling related to the inefficiency of customs. This, of course, should lead to a reduction in administration.
– Surely you are satisfied with the division of the Ministry of Economy, Energy and Tourism into three separate ministries?
– Look at the ministries in the Netherlands and in Switzerland – there are no more than seven. However, these countries have economies incomparable to ours. There is a deformation in the thinking even of Bulgarian businessmen. Some of them think that by having a minister, he will solve their problems, not them. It’s moving towards more administration again. And only from 2010 to 2013, the central administration grew from 43 thousand to 57 thousand people. Almost 30%. The GERB government, for example, replaced 40,000 people, and Oresharski’s – 20,000 in one year. And all these freed people are waiting for the next change of government to return to their places. They and their families vote for those who will appoint them. If this is not buying electoral mass through government offices? But at the moment we have hope, because in the declaration that the coalition partners signed, there are extremely good intentions, which if carried out with the right tools, for me, this will be a revolutionary change. Just as revolutionary was the change in the political culture of our politicians who created this coalition.
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