One in five Bulgarian businesses will freeze recruitment or reduce staff due to the rise in the social security contribution rate, a poll of 160 company executives, carried out by economic policy think tank Institute for Market Economics (IME), showed.

The survey estimated that the 26.6 per cent rise in the social security rate from January 1 will cost companies 545 million leva this year, or 0.8 per cent of the projected gross domestic product (GDP).

Before the Government passed its economic stimulus package, employers and economic analysts all said that reducing the social security burden would be the most effective buffer against the crisis.

World Bank chief economist Simeon Dyankov told 24 Chassa daily in an interview earlier this week that the biggest risk for Bulgaria was the massive wave of lay-offs already sweeping into Eastern Europe. He quoted World Bank estimates that decreasing the social security contribution rate by five per cent could save 130 000 Bulgarian jobs.

"EU countries have already adopted preferential VAT rates for labour-intensive goods and services. Bulgaria has a flat [20 per cent] rate and the only measure to cushion the blow on the labour market is the reduction in social security contributions," said Ivo Prokopiev, chairman of the Confederation of Employers and Industrialists in Bulgaria.

Finance minister Plamen Oresharski said the crisis has taken a turn for the worse with economic activity slowing faster than expected. "This is worrying as it will affect not only the level of employment but also revenue, and these are processes we are going to see in the next month," he said.

However, the Government does not plan to lower the social security contribution rate as a measure to counter unemployment.

"A reduction of the social security burden is not on the agenda even for our next term in office. This can only happen when the pension system is reformed but the mechanical reduction carried out during this term will not be repeated," said the chairperson of Parliament's economic committee Yordan Tsonev from the Movement for Rights and Freedoms (MRF).

Source: Dnevnik.bg