What was billed by some Bulgarian media as the first conflict within Bulgaria’s new Cabinet quickly fizzled out on August 26, when the Government agreed not to increase pensions and salaries in the public sector in the first year of its term, but said it would review the situation in June 2010.

Finance Minister Simeon Dyankov’s plans to include a moratorium on pension and salary hikes in the Cabinet’s four-year fiscal plan to 2013 was opposed by Labour Minister Totyu Mladenov, who was backed by Bulgaria’s labour unions.

Prime Minister Boiko Borissov was unfazed by the clash, comparing it to a minor domestic dispute over how to spend the household budget. "The husband wants to buy a car, the wife wants clothes. Does that mean they have to get a divorce?" he said.

The key to increase public administration salaries and pensions was to increase revenue collection. "When there is more money from smuggling we’ve stopped and from value-added tax, then there will be an increase in pensions and salaries," Borissov said after the Cabinet meeting on August 26, as quoted by website mediapool.bg.

The fiscal framework proposed by the Finance Ministry targeted a balanced budget, which Dyankov said was key to maintain the stability of Bulgaria’s currency board. "The Budget for 2010 will be more difficult than this year and more unpredictable," he said, as quoted by Bulgarian news agency BTA.

Earlier in August, the Cabinet approved a cut of 15 per cent in the budgets allocated to state institutions for 2009, which will save 1.16 billion leva on the spending side of the Budget, but faced an uphill struggle in boosting revenues amid an economic recession.

The worst of the recession was expected to be over by spring 2010, which was why the Cabinet pencilled in a tentative date for Budget revision for June 15 2010, Dyankov said.
Next year’s Budget framework envisioned unchanged taxes and welfare payments for the unemployed. Mandatory social security contributions payable by employers would be lowered by two percentage points from 31.6 per cent and could be lowered further, up to five percentage points, should Budget revenue collection in 2010 allow.

The Budget macroeconomic framework was based on the forecast that Bulgaria’s economy would shrink by two per cent in 2010, compared to 6.3 per cent expected by the new Cabinet for this year, while inflation is forecast to be 2.2 per cent.

Pension hikes that went into effect on July 1 2009, just days before the Socialist-led tripartite coalition was voted out of power, would cost Bulgarian taxpayers a further 500 million leva next year, prompting Borissov to lash out at his predecessor in office.

"[Sergei] Stanishev knows very well that he left me a three billion leva deficit and there is no way I can raise salaries now," Borissov said, as quoted by Dnevnik daily. Irked by criticism from Stanishev’s Socialist party, now in opposition, Borissov asked Cabinet ministers not to use the word "freeze".

Beyond 2010, hikes in pensions and public servants’ salaries would be tied in to inflation, unemployment and payroll tax, Dyankov said.