Ahmed Dogan leader of one of the
three ruling parties, the Movement
for Rights and Freedoms, the ruling
majority has made a mistake by
accepting that EU funds had to be
managed the same way as money
emanating from the state budget.
Photo: ANELIA NIKOLOVA
Four days after Bulgaria was slammed by the European Commissions interim report, freezing close to 800 million euro in European Union funding, Bulgarians heard this comment from one of the leaders of the three ruling parties: The fact that the coalition has found the strength to conduct a fair self-analysis to find the most adequate principles and mechanisms to correct the policy regarding first and foremost the European funds, shows that the tripartite coalition has serious political resources and capacity.
The words belong to Ahmed Dogan, leader of the minor partner in the coalition, the Movement for Rights and Freedoms (MRF), as quoted by Bulgarian BTA news agency. Dogan, together with all of the MRF MPs, attended a meeting of the ruling coalition in Bansko resort in the Pirin mountains on July 26-27.
Dogans elaboration on the current political reality aside, all the other major decisions of the coalition, less than a year before the next general elections are due, were announced by Prime Minister Sergei Stanishev, leader of the senior coalition partner, the Bulgarian Socialist Party, as well as Finance Minister Plamen Oresharski.
The decisions taken in Bansko fall into two areas: measures designed to improve the living standards of people on low incomes and steps aimed at showing the world and Bulgarians that, in spite of the ECs censure, the Government is capable of managing EU funds.
The budget
July is the time when the Finance Ministry will examine next years draft budget. All its actions and decisions are based on likely spending caps. The Bansko meeting was the first public discussion of the 2009 draft budgets framework. Once again the key phrase in the discussion, as well as Oresharskis media statements, was the budget surplus. Exactly halfway through the year this stood at a little more than 3.8 billion leva, of which more than 600 million leva is accounted for by EU funds Bulgaria has already received.
Having a budget surplus is a key element n the Budget Act adopted each year by Parliament. Not only does it sustain Bulgarias economic stability, it also encourages foreign investors to trust the countrys economy. So far Oresharski has managed to portray himself as the strong protector of the surplus, defying BSP politicians demands to spend it on alleviating social disadvantage, such as rasing pensions. Economists have also pressed him to use the surplus to decrease the overall tax burden on Bulgarians, in particular to reduce the insurance burden and lower the Valued Added Tax rates from the current 20 per cent to 15 per cent. Georgi Angelov, chief economist at Open Society Institute Sofia, as well as economists from the Institute for Market Economics, are among the proponents of this scheme. The same individuals were also prominent backers of the 10 per cent flat tax rate in Bulgaria introduced this year.
Attacked from all sides and under renewed public pressure as the head of a department strongly criticised by the ECs July 23 report, Oresharski chose to float measures that he would have rejected just a few months ago. Hence, the overall insurance burden will be reduced by 2.4 per cent, according to the draft budget for 2009, he told reporters. He also announced that pensions contributions will be reduced by four per cent. Health contributions will increase from six to eight per cent. The contribution to the fund guaranteeing employees receivables is to be reduced from 0.5 per cent to 0.1 per cent.
He kept the position expressed at the previous coalition meeting on May 10-11 that the insurance burden will be distributed in a 8-10-12 ratio paid by the employee, the employer and the state, respectively. His 2009 budget forecast was a GDP of 72.2 billion leva; end-of-period and average inflation of 4.2 per cent and 5.1 per cent, respectively. Oreshrski also updated the 2008 budget figures according to which the end-of-period and annual average inflation was expected to be 6.7 per cent and 9.5 per cent respectively.
Oresharski remained firm about the potential for lowering the VAT rate and said that the rates will remain changed in 2009. This will also apply to corporate and income tax rates and excise duties on fuels. This means that for yet another year Bulgarians will pay one of the highest rates on VAT and excise duties in the EU.
Pensioners were glad to hear that Stanishev plans to use the budget surplus for raising their pensions. He has already promised them a Christmas bonus higher than last years 100 leva.
EU funds
It was left to Stanishev to outline Bulgarias effort to prove itself a reliable EU partner in its expenditure. On the day the EC published its highly critical report, Stanishev said that the Government had adopted an action plan to overcome its problems. In Bansko Stansihev said that a new body had to be created to supervise the absorption and allocation of EU funds by Bulgaria.
He was quick to say that the new body will not have the status of a ministry and will probably fall under the auspices of Meglena Plougchieva, appointed as Deputy Prime Minister for EU Funds Management earlier this year. So far she had served under the administration of Council of Ministers. She had also been using its premises because the 2007 budget did not provide funds for her ministry. Whether this new body will serve for this purpose was not explained. Neither was any figure attributed to the cost of running the new body that will be entrusted with regulating the spending of EU funds.
As with the discussion on the draft 2009 budget, the debate on EU funds was dominated by the idea of using the surplus to mitigate the negative impact of the frozen 800 million euro.
Stanishev said that the surplus will be used to cover some of the payments put on hold by the EC. The priority would be major road infrastructure projects. This in effect means that small and medium-sized companies, as well as farmers, will not benefit from the accumulated record surplus and will have to face the consequences of being deprived of the funds already approved by the EC.
At the end it was again Dogan who took the floor to say that the ruling majority has made a mistake by accepting that EU funds had to be managed the same way as money emanating from the state budget. Reporters interpreted his words as a clear statement that Bulgarian administration had a different approach when using EU and Bulgarian taxpayers money.
