- For now, there is no parliamentary majority to advance the controversial draft budget of the caretaker cabinet to a vote.
- This prudence may disappear if negotiations for puting together a government coalition fail.
- Meanwhile, the elephant in the room-deteriorating public finances and the need for unpopular measures-remains unaddressed.
Spending someone else's money is easiest, especially when one bears no responsibility. Under this motto, several consecutive parliaments have approved new multi-billion investment programs, generously increased salaries and pensions, and introduced tax breaks-all ostensibly "for the people," but with the ulterior motive of securing votes in yet another early general election.
The reality is that to benefit some, resources must be taken from others. This principle is clear in the current caretaker cabinet's budget calculations for this year and next: expenditures are set to grow by an unthinkable 25% in a single year, with the bill falling on businesses and workers. For 2024, this is to be achieved through one-off measures and draining reserves (which may still fall short), while in 2025, the plan involves increasing social security contributions.
Temporary relief
Some reassurance came from the first meeting of the parliamentary budget committee, in which it became clear that there is no majority to advance the controversial 2025 draft budget of the caretaker government for review. Similarly, no consensus emerged on extending VAT breaks for restaurant services and bread.
The newfound caution among some deputies does not reflect a sudden sense of statesmanship but rather short-term calculations, given the possibility of finally forming an elected government after seven parliamentary elections in a three and a half years.
"Before it is clear whether an elected government will be formed, new tax breaks should not be approved because they put public finances at risk," said Temenuzhka Petkova (GERB), urging MPs to exercise wisdom.
Extension with challenges
The budget committee voted to take the proposed tax laws and 2025 budget draft off the agenda. Instead, the so-called Extension Law was approved on first reading, enabling the state to function until a budget is adopted.
Passed in the parliamentary chamber on January 9, the law sets out specific rules for state payments, prioritizing salaries and social expenditures. These will be paid in full per current legislation, meaning police and military personnel will receive their increased wages-up by over 40%-costing taxpayers nearly 2 billion levs (1 billion euro) more this year. Pensions will also be paid in the amounts applied in December 2024.
The law also establishes a safeguard: if revenues for a given period are insufficient to cover expenditures, payment limits will be proportionally reduced to match revenue levels. This provision, however, risks halting payments for investment projects.
In this situation, the key risks are:
- Amendments to be made before the final reading: The budget may grow entangled with additional provisions, particularly if negotiations for an elected cabinet collapse.
- Lack of reforms: Payments may proceed up to the level of collected revenues, but no structural reforms or measures to reduce expenditures or increase revenues are expected. This delay might also accumulate new commitments for spending.
Without an approved 2025 budget or a Medium-Term Fiscal-Structural Plan submitted to the EU, Bulgaria could face issues with its Eurozone candidacy, particularly as it approaches compliance with the inflation stability criterion.
Challenges
The fiscal problems stem from decisions made over the last four years, including generous tax breaks, lavish subsidy schemes, and wage and pension increases, combined with unmet reform commitments under the EU-backed Recovery and Resilience Plan.
Bulgaria has received only one disbursement under the Plan, with the second withheld due to unfinished reforms. Unrequested funds amount to 7.8 billion levs (3.9 billion euro), with a deadline of mid-2026. Any delays threaten to shift the financial burden of incomplete projects from EU funds to the national budget.
Meanwhile, capital expenditures have also created a mismatch: planned funds of 2.7 billion levs contrast with commitments of 4.2 billion levs. Additional obligations to municipalities under a multi-year capital investment program exceed 7 billion levs.
The least risky option
Currently, only the 'DPS - New Beginning' faction in parliament, led by Delyan Peevski, fully supports the caretaker cabinet's draft budget . Former budget committee chair Yordan Tsonev (DPS - New Beginning), also praised the approach of keeping expenditures intact without raising taxes.
However, more parties prefer an extension budget to avoid the risks associated with a floating majority passing additional expenditures - a practice seen in recent parliaments. On paper, these costs may be offset by overly optimistic revenue projections, further postponing problems for future cabinets to address.
Given the fragile state of public finances and political uncertainty, the extension budget appears the most pragmatic option.
- For now, there is no parliamentary majority to advance the controversial draft budget of the caretaker cabinet to a vote.
- This prudence may disappear if negotiations for puting together a government coalition fail.
- Meanwhile, the elephant in the room-deteriorating public finances and the need for unpopular measures-remains unaddressed.
Spending someone else's money is easiest, especially when one bears no responsibility. Under this motto, several consecutive parliaments have approved new multi-billion investment programs, generously increased salaries and pensions, and introduced tax breaks-all ostensibly "for the people," but with the ulterior motive of securing votes in yet another early general election.
