- The Zhelyazkov cabinet has proposed a budget draft that repeats the flawed model of the prior caretaker government.
- The increase in expenditures is substantial, while unclear sources of revenue remain a concern; however, the budget deficit aligns with the eurozone accession criterion.
- The idea of a tax amnesty proposed by the caretaker cabinet has been removed from the current version of the budget, but the proposal to raise social security contributions remains intact.
We wanted to stabilize state finances, but we lacked the will - this succinctly describes the 2025 budget draft presented by the elected coalition cabinet that took office last month. The draft incorporates nearly the same incredible figures as the version proposed by the prior caretaker government in December and essentially repeats the same model-a huge rise in expenditures against a backdrop of unclear sources of revenue.The government claims it will maintain the budget deficit at 3% of the projected GDP, both on cash and accrual bases - a level that is crucial to Bulgaria's ambition to adopt the euro by 2026. Total expenditures are projected to rise by 18 billion levs (9 million euro) or by nearly 24% year-on-year, reaching a staggering 97 billion levs. Current expenditures - covering pensions, social payments, and public sector salaries-are set to increase by approximately 11 billion levs. Notably, 2.1 billion levs of this increase will be allocated solely for salary hikes in the defense and security sector.
Find the differences
Initially, the government led by PM Rosen Zhelyazkov intended to increase pensions by 5% as of July 1, based on 80% of the previous year's inflation rate plus 20% of the rise in the average insured income. However, following a public backlash, this plan was scrapped by the coalition partners before its official announcement. Instead, pensions will now be raised according to rule enshrined in the Social Security Code (50% of the inflation rate plus 50% of the rise in average insured income) that gives an increase of some 8 - 9 percent. This means an additional 500 million levs is now being sought to keep the deficit within the 3% limit.Another change involves reduced operational expenses and salary increases for public administration; instead of a proposed 10% rise, salaries are now proposed to increase by just 5%, with no clear justification provided for this adjustment.
Despite these alterations, the budget reflects the same reckless spending patterns seen in the caretaker cabinet led by PM Glavchev. Tax and social security revenues have been reduced by 2.8 billion levs, yet overall revenues are expected to grow by over 20% to 90.3 billion levs. This includes a projected increase in VAT revenues of over 6 billion levs (33.7%), although the measures underpinning this figure are deemed unconvincing at best.
For instance, reinstating the 20% VAT rate for restaurant services, flour and bread that was cut at the outbreak of the Covid pandemic is expected to generate less than 500 million levs in revenue. Another half a billion is anticipated to come from combating the shadow economy, while an additional 200 million levs is expected from curbing the misuse of cash receipts for claiming VAT credit at gas stations. The VAT registration threshold has also been lowered, to 100,000 levs, after it was raised to 166,000 levs earlier this year.
Spending more without worries
Capital expenditures are anticipated to double compared to last year, reaching almost 13.9 billion levs, with just over 1.1 billion levs earmarked for municipal projects. When examining departmental budgets, the Ministry of Defense is slated for a staggering 100% increase; security bodies like State Agency for Technical Operations and State Agency National Security will see increases of over 70% and nearly 60%, respectively. The Ministry of the Interior's budget is expected to grow by almost 50%. These substantial increases are primarily driven by higher salary costs.
While some minor adjustments differentiate this budget from its predecessor, critics argue that it lacks substantial reforms or a clear vision for addressing underlying fiscal challenges. The responsibility for managing public finances now lies firmly with the current government. Judging by the numbers presented, there appears to be a widespread lack of accountability regarding public finances.
In conclusion, while there are some differences between the two budget drafts-such as slight reductions in expenditures and shifts in revenue expectations-the new proposal has been criticized for continuing the patterns of excessive spending without meaningful changes. The lack of political will to address fiscal imbalances raises concerns about the sustainability of Bulgaria's public finances.
- The Zhelyazkov cabinet has proposed a budget draft that repeats the flawed model of the prior caretaker government.
- The increase in expenditures is substantial, while unclear sources of revenue remain a concern; however, the budget deficit aligns with the eurozone accession criterion.
- The idea of a tax amnesty proposed by the caretaker cabinet has been removed from the current version of the budget, but the proposal to raise social security contributions remains intact.
We wanted to stabilize state finances, but we lacked the will - this succinctly describes the 2025 budget draft presented by the elected coalition cabinet that took office last month. The draft incorporates nearly the same incredible figures as the version proposed by the prior caretaker government in December and essentially repeats the same model-a huge rise in expenditures against a backdrop of unclear sources of revenue.The government claims it will maintain the budget deficit at 3% of the projected GDP, both on cash and accrual bases - a level that is crucial to Bulgaria's ambition to adopt the euro by 2026. Total expenditures are projected to rise by 18 billion levs (9 million euro) or by nearly 24% year-on-year, reaching a staggering 97 billion levs. Current expenditures - covering pensions, social payments, and public sector salaries-are set to increase by approximately 11 billion levs. Notably, 2.1 billion levs of this increase will be allocated solely for salary hikes in the defense and security sector.
