THE Movement for Rights and Freedoms (MRF) achieved victory in its dispute with Finance Minister Milen Velchev about Budget 2004.

The coalition partner of the ruling National Movement Simeon II (NMSII) declined approval of the budget last week because it did not agree on how to make up the 70 million leva shortfall after the Government agreed to lower the tax on low incomes and to pay 80 per cent of sick leave. But after a second meeting this week between MRF leader Ahmed Dogan and Velchev, with the intermediation of Prime Minister Simeon Saxe-Coburg, an agreement was reached.

The 70 million leva deficit will be covered by cutting 45 million leva from the sum for maintenance of the state administration, 10 million leva from the subsidy for the Agriculture State Fund and 10 million leva from the subsidy for the state railways, as well as five million leva from the sum for Tobacco State Fund. The initial proposal by the Government was to cut 10 million leva less from the money for the administration at the expense of the Tobacco State Fund.

During the meeting between Dogan and Velchev, in the presence of Saxe-Coburg, an agreement was reached that if there is over-performance of the budget next year, the first 25 million leva of the surplus will be granted to the Agriculture and Tobacco State Funds and the state railways. Thus the funds for the Agriculture ministry, led by Minister Mehmed Dikme from the MRF will remain intact, as Dogan had pledged.

According to NMSII floor leader Stanimir Ilchev, the agreement means more freedom for three key figures in the Cabinet - Deputy Prime Minister and Economy Minister Lydia Shuleva, Velchev and Dikme.

"The outcome is not perfect but it is very good and the fact that it was reached in an atmosphere of dialogue and understanding means that the potential of the coalition is good," Ilchev said.

The 70 million leva that turned into the bone of contention for the coalition partners, represents 0.18 per cent of the GDP. The agreement between Velchev and Dogan means that the draft budget will retain the deficit target of 0.7 per cent of GDP next year.

The other controversial issue in Budget 2004 was excise duties. The increase in the fuel excise duties next year was pushed through at the beginning of this week. After Parliament's committee on the budget did not manage to decide on the new rates, urgent political consultations were held and several hours later the new excise duties were approved. The excise duty on propane-butane will rise by 80 leva a ton to 340 leva. The duty on petrol and diesel fuel will increase by 55 leva a ton to 655 leva and 465 leva respectively. Calculations show that the price of propane-butane will go up by 11 per cent, of petrol by four per cent, of diesel by seven per cent. The approved scheme will keep the revenues from fuels at the same level as planned by the Finance Ministry - 122 million leva.

The rise in excise duties has been criticized by both gas and oil distributors. They said that the propane duty rate already exceeded the levels in the European Union and that diesel is the "social fuel" and its higher price will affect public transport, hospitals, schools and the army. An agreement was not reached despite the protests of taxi and lorry drivers, and the will of the Finance Ministry prevailed. At the same time the excise duties on imported new powerful cars is to be decreased, the budget committee decided. Parliament already has approved other amendments to the package of tax legislation that goes with the Budget Act. Craftsmen and traders whose annual turnover is worth up to 50 000 leva, are to pay a licence tax. People registered as tobacco producers or farmers, are exempt from income tax. Finally, the MPs approved amendments to the VAT Act. Companies will use VAT credits to provide their employees with work-clothes and food, one of the amendments says. VAT credit may be drawn to open cafeterias for the workers, ensure transportation to office, sports facilities and recreation and holiday centres, as well as lodgings.

To avoid the payment of the too large corporate tax all at once, Parliament rescheduled the tax on the depreciation reserve for three years. It did so by approving at second reading the amendments to the Corporate Tax Act. According to last year's amendments, companies should pay a special tax when they write off long-term assets from their capital, which should be paid in 2004. It turned out to be too much for business and Parliament decided to reschedule it in three instalments, that should be paid by 2006. According to experts, the total of the rescheduled taxes is 200 million leva and the total of the depreciation fund in the country is about five billion leva.