Comment by Veselin Stoynev:
Public finances may be bad, but not catastrophic, as those in power suggest. The measures they are introducing in response may not be catastrophic, but they are bad.
This is how the framework of the regular budget until the end of the year and the updated consolidated budget forecast until the end of 2028 can be described. Because the budget deficit is high, the debt is growing, inflation remains, and economic growth is shrinking.
We are not raising taxes, only social security contributions and vignettes
It is not very clear how the deficit of 7.4% announced by the Ministry of Finance is melting down to 5.7% by the end of the year, because the measures on revenue and expenditure in the treasury do not provide serious grounds for melting down. We can assume that the existing deficit is actually close to "melting".
Despite promises that taxes will not be raised, they are being raised in the form of social security contributions and fees. An additional 90 million euros are expected from the increase in the maximum social security income to 2,300 euros from August 1. From the symbolic increase by 5% of the minimum social security thresholds, which remained below the minimum wage threshold - 40 million. From the increase in the price of vignettes, also from August 1, by 30% - 53 million. The excise tax on cigarettes is also being raised - with an unclear fiscal effect. From the increase in the gambling tax by 10%, 100 million are expected. That is, there are not even 300 million euros in savings, which is equal to nothing with a deficit of 7.2 billion euros. Even if we expect the revenue administration to suddenly work much better, the result will still be modest.
Cut costs - a little wholesale and a lot retail
The main treatment for the deficit is cutting costs, but even that is modest. The largest savings of 564 million euros come from the elimination of automatic wage increases in the public sector, tied to the average or minimum wage, as well as from limiting salaries with a ceiling below the presidential salary for elected positions at management levels - agencies, regulatory bodies and others - and for bosses in state-owned companies.
285 million euros are expected to be saved from cost optimization in BDZ, "Railway Infrastructure", post offices, etc. Access to social benefits is being cut by 200 million, plus another 20 million from unemployment benefits and benefits. In addition to the already announced suspension of the Covid supplement for newly granted pensions, which will save 2.9 million euros, and a cut in party subsidies, which will save 2.1 million, religious aid is also being cut by 5 million euros.
And capital expenditures are even increasing by 3.5 billion compared to the previous budget, with 1.1 billion of them for municipal projects, half of which are accrued liabilities. Of the total 9.36 billion euros in capital expenditures, 5.3 billion are from European financing, including from the Recovery and Resilience Plan. However, 500 million euros from public procurement for repairs and maintenance and for indexation are frozen.
Fixing the deficit with more debt
And when the bill from the modest revenue and expenditure measures does not come out, the deficit, although it is to a large extent a structural legacy from previous governments, remains to be covered mainly by drawing more debt, which only masks the problem.
After the 3.8 billion euros of debt already approved by parliament, the government is planning another 2.2 billion by the end of the year. But not only that - according to the budget forecast until 2028, the debt will continue to grow and its share of 30.1% of GDP this year will reach 35.2% in 2028. That is. the total debt in 2026 will be 37.7 billion, in 2027 - 44.7 billion, in 2028 - 50.5 billion euros, with the vast majority of it being external debt. Thus, the budget deficit should melt by 2028 to 3%.
More decisive, but cautious with income and taxation
In its instructions to state departments on the eve of the announcement of the budget framework, the Ministry of Finance envisaged that the minimum wage would be frozen at 620.20 euros until the end of 2028. After this became a media bombshell, first the Prime Minister and then the Finance Minister denied it (or simply decided to test the public reaction). And the official draft of the medium-term budget forecast for 2026-2028 foresees that from next year there will be not a freeze, but a new mechanism for determining the minimum wage, agreed with employers and unions, which does not exclude the possibility that it will remain close to its current level.
A more revolutionary measure is that civil servants, including those employed in the justice system, will pay half of their personal insurance contributions from August, and in full from next year. Thus, from August until the end of the year, they will pay a total of 6.5% of their salary for pensions, health, maternity and unemployment, and as much more from next year. A similar mechanism will be considered for those employed in the Ministry of Internal Affairs and the Ministry of Defense from next year, although it was initially planned that they would retain the privilege of being fully insured by the state. However, all of them will be compensated - but only until 2027 - with a salary increase, so that they can maintain their disposable income. That is, this measure will not have any effect on saving budget expenses for at least a year and a half = some money, instead of going directly from the budget to the National Social Security Institute, will go through the accounts of the insured.
Strengthening power, instead of decisive measures
With growth of two and a half percent this and the next two years (with over three so far), with debt of over a third of GDP and with over 45 percent redistribution of GDP through the budget, Bulgaria is doomed to stagnation. However, the rulers have clearly made their choice: instead of investing the enormous public trust at the beginning of their mandate in more decisive management measures, they are investing it in strengthening their power. Because in the fall we have presidential elections, next fall - local elections.
Apparently from "Progressive Bulgaria" They prefer to consolidate the situation, to slow down the development of the country, even to postpone the real solution to inherited structural problems, with the huge risk of deepening them, but not to risk serious social upheavals that may accompany some serious reforms. They choose to consolidate their power, rather than use it as an instrument for good governance.