According to the National Revenue Agency (NRA) Bulgarians earning more than 7200 leva a year are classified as “rich”.
Following this criterion, there were 53 000 “rich” Bulgarians in 2006 in the country, generally estimated to have a population of about 7.5 million. But these numbers do not say much about the state of the Bulgarian economy and the wealth of Bulgarians. However, as a country of great contrasts, Bulgaria did offer a lot to analysts in 2006, the last year before the country joined the European Union. The year 2006 provided different results in terms of micro and macro economic performance of Bulgaria. Throughout the year there were several headlines on the business and economic pages in Bulgarian-language newspapers, on themes like “Gas price increase in Bulgaria unavoidable”; “Natural gas price hikes in Bulgaria loom”; “Electricity price hikes after nuclear power plant closure”; “Electricity price hike expected”; “Product fee shock expected”. The theme of the energy question, more precisely the price of electricity, was one of Bulgarians’ main preoccupations during 2006. This issue had two aspects. One was the closure of reactors three and four of Kozloduy nuclear power plant (NPP), which was scheduled for January 1 2007, and the other the privatisation of the electricity supply companies and the new owners’ policy towards customers. The electricity price saga continued throughout 2006, often resulting in key state officials contradicting each other. Such was the case in March, when Mardik Papazyan, executive director of the National Electric Company, said that an increase of 30 per cent in the price of electricity could be expected in 2007, after the decommissioning of the two Kozloduy reactors. A few days later, Economy and Energy Minister Roumen Ovcharov said completely the opposite, making people feel more insecure about the issue. People had every reason to feel insecure because the new owners of the electricity supply companies were constantly demanding that the state set new, higher tariffs. In October, it was decided that electricity prices would remain unchanged at least until the middle of 2007. However, in exchange, the electricity supply companies managed to persuade the state to get rid of the lower tariffs for the first 75 kilowatt hours of electricity consumed each month. This was how in October the average cost for end users was negotiated to be 0.108 leva a kilowatt hour. These tariffs meant that Bulgarian electricity prices continued to be among the highest in Europe.
The agreement for the construction of Belene NPP was signed in 2006. The contractor is Russia’s Atomstroytexport. The first of the two planned reactors are scheduled to start operating in 2013. Until then, Bulgaria will be in search of new sources of electricity, and no doubt after the closure of Kozloduy’s two reactors, the question of prices will draw even more attention. As for the price of natural gas, which keeps the country’s heavy industry going, the situation continued to be unclear. Currently, Bulgaria pays a relatively low price for natural gas supplied by Russia’s Gazprom, enabling it to keep domestic prices low. The arrangement allows Bulgargaz prices to domestic producers to be kept at a relatively low $180 a 1000 cubic metres. However the current agreement with Gazprom expires in 2010 and the Russians have said several times that new prices should be negotiated.
Rapid growth of GDP, credit expansion, and the inability to carry out monetary policies because of the currency board arrangement made it difficult for Bulgaria to keep prices stable in 2006. In January, the Finance Ministry predicted annual inflation of 5.6 per cent for 2006. Recently the ministry’s forecast agency corrected its prediction and increased the percentage to 7.2.
According to the National Statistical Institute (NSI) Bulgarian households spent nearly 36 per cent of their income on food, followed by spending on electricity, water and heating. Nearly 37 per cent of family budgets are used for the purchase of food. In 2006 people spent less on taxation and transportation, compared to 2005 levels. In September 2006, the average Bulgarian household, comprised of 2.53 members, earned 569 leva while its expenditure was 549 leva. Wages continued to be the largest source of income for Bulgarian families. Pensions came next, followed by funds from selling properties. Consumer prices started going up in the first days of the years and by December the increase was more than nine per cent. Luxury commodities gained most in price. Among these were high alcohol content liquors, cigarettes and tobacco products. Higher fuel prices raised the prices of various products as well.
As of January 2006, the price of the most popular cigarette brands was increased to 2.60 leva. In February, overall cigarette prices increased by 63.3 per cent after higher excise duties for alcohol and tobacco product were imposed. The overall hike since the beginning of the year is 71.5 per cent. This increase was significant given that, according to the NSI, cigarette purchases represent five per cent of Bulgarian household spending.
In July, minimum pensions increased from 72.45 leva to 85 leva. Pensions from 85 to 120 leva were increased by five per cent and those ranging from 120 to 150 leva by four per cent.
During the year there were several developments in the area of taxation. One of Bulgaria’s greatest achievements was the launch of the NRA in February. The NRA collects income tax, value-added tax (VAT), patent taxes and corporate taxes, as well as health insurance and pension contributions. The overall income tax burden was cut on November 2 after Parliament approved the second and final reading of amendments to the Personal Income Tax Act.
The amendments provided for an 11 per cent increase in the non-taxable threshold. A similar increase in the taxable income deductions for families with children was approved, and a more radical hike in non-taxable personal income from royalties. The non-taxable threshold applied to all taxpayers was raised to 200 leva a month as of January 1 2007. For 2006 the threshold was 180 leva.
