After a 10-hour debate, Parliament approved the first reading of Budget 2007 on November 17.
Finance Minister Plamen Oresharski said that the budget would contribute to higher employment for Bulgarians, as well as improve living standards in the country. The bill also includes the Cabinet’s position on the judiciary draft budget.
The lawmakers from the three leading parties voted in favour of the new Budget, although coalition minority partner the National Movement Simeon II (NMSII) had some comments on the mandatory pension insurance pillar and defence transfers. These issues are to be debated in greater detail during the next voting round of each clause of the bill. Oresharski said that incomes and pensions would be increased by relatively higher rates in comparison with the past few years, and a third of each lev will be spent for social assistance and welfare.
The general Government budget for next year targets a surplus of 0.8 per cent of GDP against an estimated surplus of at least three per cent this year. The macroeconomic framework is based on projections for real GDP growth of 5.8 per cent, end-year CPI inflation of 3.1 per cent and year-average CPI (Consumer Prise Index) of 4.4 per cent, CA deficit of 11.8 per cent of GDP (down from projected 12.4 per cent this year), and net FDI inflows of 10.4 per cent of GDP. Budget revenues are forecast at 21.3 billion leva or 41.7 per cent of GDP compared with the official revenue target of 18.3 billion leva (40 per cent of GDP) for this year. However, the actual performance in January-Septemeber is well above the intermediate target and the full-year revenues are likely to near 20 billion leva or more than 43 per cent of GDP.
At the same time, Parliament has already cut the corporate profit tax from 15 per cent to 10 per cent next year and a slight reduction in the personal tax burden for low-income groups is expected. These changes will be largely offset by higher property taxes, a slight increase in the excise taxes for fuels, and minor excise charges introduced for electricity, coal and coke purchased by industrial and public users. The narrowing in the general budget surplus to 0.8 per cent of GDP next year is explained by the country’s contribution to the EU budget (about 1.2 per cent of GDP) and mandatory co-financing to EU- funded programmes. However, the utilisation of EU funds is likely to move slower than projected and the actual expenditures next year would probably fall below the plan.
“The budget is ambitious in that it relies on economic growth of 5.8 per cent at the background of cautious conservatism, but as also prudent enough for a year of risks difficult to predict,” Oresharski said. He said that the successful start of Bulgarian EU integration is the key motive in the draft 2007 budget. He said that the budget was drafted in the spirit of the traditional fiscal conservatism but is at the same time based on a sufficiently aggressive tax policy.
Following the debate on November 17, Prime Minister Sergei Stanishev, the ministers and the MPs of the ruling coalition had a two-day working meeting in Borovets on November 18 and 19, where the Government coalition discussed co-operation between the Government and Parliament in the run-up to Bulgaria’s entry into the EU on January 1. Oresharski presented the 2007 Budget Bill and six panels discussed Bulgaria’s policy as an EU member in foreign and security policy, justice, domestic security, public order and crisis management, social and health care policy, the regions’ sustainable development, financial stability, economic development and the creation of a modern administration.
At the meeting, Oresharski said that the risk of price shocks on joining the EU was a myth.
“Contrary to the widespread view that Bulgaria’s entry into the EU will lead to inflationary pressure, it will actually calm down prices in many sectors,” he said. He said that the Bulgarian prices of many goods were either equal or close to average European prices.
“The challenge to the 2007 Budget is on the revenue side, which is a first, and if the budget copes with this, the spending policies can be implemented,” Oresharski said.
Foreign direct investment will exceed three billion euro, excluding the proceeds from privatisation, for the first time in 2006, which is an absolute record. Also, export growth is slightly higher than import growth, which is unparalleled in the past seven to eight years. The lasting drop in unemployment to about eight per cent is another positive trend.
