The Finance Ministry’s 2008 Budget Bill was approved by the Cabinet on October 30 and has been tabled in Parliament.

The bill is in line with the ministry’s belt-tightening policy aimed at averting threats to Bulgaria’s macro-economic stability. The budget, Finance Minister Plamen Oresharski says, should be restrictive, to prevent the soaring current account (CA) gap – among the highest in the EU – from swelling further and keep the Budget bottom line in the green.

The bill has put the budget surplus target at 3.3 billion leva or three per cent of GDP, on a par with Budget 2007, and the CA deficit at 21.8 per cent of GDP versus 20 per cent of GDP this year.

Oresharski’s approach also translates into more prudent spending on a number of items. The modest increase on a number of sub-budgets is at hand despite the expectations for a 25 per cent year-on-year increase in overall budget revenues.

MAIN CHANGES
The main beneficiary in Budget 2008 is the state investment column, from 2.8 to 4.5 billion leva. The bulk will be spent on improvement of road infrastructure.

The introduction of flat tax, at the EU’s lowest rate of 10 per cent, is also set to attract 4.7 billion leva in foreign direct investments. This forecast is conservative because even without flat tax, set to serve as a lure for many a foreign investor, FDI this year should reach five billion leva, according to InvestBulgaria Agency.

On the spending side, the state purse will be most lavish with pensioners. Spending will be by a billion leva higher than year before.

A novelty in the Bulgarian Budget will be the introduction of a central reserve, to be spent solely at the discretion of the Cabinet.

The Cabinet plans no decrease in social security contributions as of mid-2008. Oresharski and his team of officials argue that such a move would be redundant because the social security burden was cut by three percentage points as of October 1 this year. Employers insisted on a record 13 per cent decrease as of July 1 2008.

Besides, ministries will no longer defer the spending of seven to 10 per cent of Budget outlays until after the fourth quarter of the year.

OPPOSITION
The parliamentary floor is likely to be red hot once the bill goes up for debate. The opposition in Parliament will have much to fret about as it vicariously runs the line of discontent of both the education and health care sectors, if only for the reason that both sectors’ budgets are racking up a nominal – but not a real terms – increase compared to the year before.

The nominal increases for the education and health care sectors are 470 million leva and 560 million leva, respectively.

Reluctance to designate more financing for these sectors is likely to spark a row. The opposition will likely build its argument around the fact that such spending provides no room for sectoral reform despite the general consensus that reforms are urgent.

Financing for the education and health care sectors will be at 4.2 per cent of GDP, the percentage featuring in Budget 2007 as well. Teachers and scientists called for an education budget of 4.7 per cent and five per cent, respectively. The alternative budget of the Doctors’ Union in Bulgaria insists that spending on health care should be a billion leva or 70 per cent higher than the figure in Budget 2008.

And opposition will not stop here. Flat tax is likely to be high on the agenda. Expert calculations see the new taxation system, to be introduced as of the start of next year, will increase the overall tax burden to 35.8 per cent of GDP as against 34.2 per cent in 2007.

This contravenes the calculations of Finance Minister Plamen Oresharski, which see taxable persons with 180 million leva in overall savings compared to the year before.

MPs lobbying for the Confederation of Employers and Industrialists in Bulgaria are also likely to challenge the radical increase of the maximum social security threshold to 2000 leva in what is a 40 per cent increase from the current 1400 leva. The hike is not substantiated and in violation of agreements with the social partners, the CEIB said in a declaration recently.

With as many controversial points in stock, debate in Parliament will be heated and hardly as easy as in Cabinet.