A GOVERNMENT-APPROVED draft budget for next year cuts the profit tax from 23.5 per cent to 19.5 per cent.

The draft was approved on October 29 at a special Cabinet meeting.

The revenue side of the budget is 14.4 million leva, or 38 per cent of GDP, and the expenditure side is 14.7 million leva, or 38.7 per cent of GDP, Finance Minister Milen Velchev said after the meeting. This leaves a deficit of 284 million leva, or 0.7 per cent of GDP.

This year's expenditures stands at 38.6 per cent of GDP, and the increase of 0.1 per cent for 2004 is due to the allocations for raising the pensions ceiling to 420 leva, Velchev said.

Thanks to favourable interest rates and the improved debt-to-GDP ratio, expenses for external debt interest payments are down from 2.4 per cent to 2.1 per cent of GDP, Velchev said. The budget for health care is 4.3 per cent of GDP against the 2003 level of 4 per cent. The nominal increase is 15.1 per cent. The budget for education is 4.2 per cent of GDP (up from 3.9 per cent this year), making a nominal increase of 16.3 per cent.

The Government is proposing to increase the judicial budget by 44 per cent. Apart from its own draft budget, the Government will also move to Parliament a budget proposal by the Supreme Court Council (SCC), which is bigger than the Government's, said Velchev. He would not say how much the SCC want.

The draft budget has 1.33 million leva for infrastructure projects, in addition to which there will be some European Union funding.

The Government will pay up all municipal expenses which are considered its responsibility, said Deputy Finance Minister Kiril Ananiev. It will also cover the expenses for transportation of teachers, students and conscripts. This year these expense items do not get full funding, Ananiev said.

The change in the tax rates came as surprise because for some time Velchev had insisted that next year the profit tax will be 22 per cent and it will stay so till 2006, although he previously promised a reduction to 20 per cent in 2004 and to 15 per cent in 2005 in his taxation strategy. There were strong protests from employers, trade unions and even members of the Cabinet. Earlier, Deputy Prime Minister and Economy Minister Lydia Shuleva tried to defend the interests of business and insisted on a 20 per cent profit tax next year, but at the time Velchev replied that he would also like lower taxes but that this depended on the budget deficit.

The organisation representing employers, the Bulgarian Industrial Association (BIA), said at a meeting a day before the Cabinet's session that they disagreed with the then-proposed tax rates in the budget. According to the BIA, the fact that the Government had failed to keep its promise of a gradual reduction of corporate tax would decrease the trust of Bulgarians and foreign investors in the policy of the ruling party. The investments that have already been made, have been calculated on the basis of corporate tax of 20 per cent in 2004 and 15 per cent in 2005 and after that as it was stated in Velchev's taxation strategy.

The Confederation of Independent Trade Unions in Bulgaria (CITUB) also said that they did not support the 2004 budget. The position of the trade union was announced by its leader, Zheliazko Hristov. CITUB insisted that the minimum monthly salary in 2004 should be 150 instead of 120 leva, as it was written in the draft of the Budget Act.

The budget for next year has to be submitted to Parliament by October 31.