Bulgaria presented its Draft Budget Plan for 2027 to the European Commission and the Eurogroup. This is a document that the eurozone countries have traditionally (for over 10 years now) presented (by October 15) as part of the procedures for monitoring and coordinating economic policies. These plans do not simply describe the expected revenues and expenditures in the national budgets, but focus on specific measures to achieve fiscal sustainability. The latter is particularly relevant for countries in an excessive deficit procedure, which must find the path to budgetary consolidation.
For Bulgaria, the plan comes at an extremely important moment, as it essentially precedes the budget procedure in the country and is the first indication of the framework of public finances in 2027. If we leave aside the strikes in the Black Sea and major geopolitics, the state's finances and dealing with the budget deficit are undoubtedly the biggest challenge facing Radev's government. In this sense, the budget is once again the key to political (in)stability.
The dispute over the culprits and the starting position
The big political (and somewhat technical) debate is who is to blame for the excessive deficit and what is the starting position. The basic picture of the external observer is what is written in the Council decision (July 2026) regarding the existence of an excessive deficit in Bulgaria. According to this decision - taken before Radev's government voted on the regular budget for 2026 - the budget deficit is 3.5% of GDP in 2025 (within the limits, taking into account the derogation for defense spending) and 4.1% of GDP in 2026 (beyond the reference value, even taking into account the derogation for defense spending). The forecast for 2026 is the reason for opening an excessive deficit procedure.
The domestic political position on the excessive deficit is much more complicated. According to Radev's government, such a deficit existed before, and the actual deficit for 2026 is 5.7% of GDP (as recorded in the budget adopted by the new majority in parliament). Here comes the first big problem - according to the Commission, we are starting consolidation from a 4.1% deficit, and according to the Bulgarian government from a 5.7% deficit. This also opens the debate about carrying over expenses to past periods. In the new budget plan, we see that the deficit for 2025 is already indicated at 4.7 billion euros (4% of GDP) compared to official (still) data in Eurostat - 4.1 billion euros (3.5% of GDP). So the debate about the budgetary past is still to come, but it brings value mainly to politicians. For citizens it is clear - the deficit has been omitted and what is important is what are the steps towards controlling it.
Catch-up on (excess) spending and a pinch of new taxes
If we were to simply explain what the presented plan for budget consolidation and dealing with the excessive deficit is, it is based on the idea of temporarily holding back spending and expecting the economy and revenues to catch up with the inflated spending. The problem is that this picture also adds the raising of some taxes, including the notorious excess profit tax.
The approach of holding back on spending is particularly visible in personnel costs. The budget goal here is for personnel costs in 2027 to remain practically the same in nominal terms – around EUR 12.4 billion for the entire public sector. This is potentially achievable (on paper) with a 5% increase in salaries in the budget sector and an increase in spending on teaching staff by 7.5% - a total of about 450 million euros, which is offset by the optimization of staff in the budget sector and specifically in law enforcement agencies - which brings a reduction of 450 million euros. In other words, if you manage to (slightly) optimize the state administration (not guaranteed) and resist the pressure to limit salary increases to single values (also not guaranteed), then nominally containing staff costs is a completely achievable task.
However, the budget cannot be tied down with control over staff costs alone. If we see all discretionary measures on the expenditure side, the total effect is practically zero - whatever is saved on staff and control over TELK goes to higher salaries and a package of social measures and measures for children. Separately, pensions are increasing by 8%, which is partly borne by the budget (it is not covered only by social security contributions). Thus, the task in terms of revenues becomes more difficult and accordingly a long list of discretionary measures appears in the revenue side with a total value of nearly 2 billion euros. The main ones are the (one-time) taxation of excess profits (800 million euros), the new increase in the maximum social security threshold (265 million euros) and the minimum social security thresholds (nearly 200 million euros). These are the measures that weigh most heavily on incentives over capital and labor, that is, they have a negative effect on growth and disposable income.
Is there room for greater ambition?
Despite the (partial) restraint on the expenditure side and the announced cost of 2 billion euros for taxpayers, the budget deficit does not seem to be within the limits in 2027 either. The plan foresees an updated deficit for 2026 of 5% of GDP and an expected deficit of 4.3% in 2027. This is exactly the Commission's forecast from spring 2026, that is, before the excessive deficit procedure was opened. Here we return to the debate about the starting position and the legacy in public finances. Currently, the budget plan says that after a series of measures in the expenditure and revenue parts of the budget, we will reach the point where the Commission put us in its forecasts anyway before putting us in the procedure.
On the domestic scene, it seems quite controversial how a deficit of 5% could be reached in 2026, without excessive spending pressures at the end of the year. A careful look at the budget execution data suggests a potentially lower deficit and, accordingly, the possibility of faster consolidation. Such are the messages of the authorities on domestic consumption, with a number of appearances commenting that a deficit close to 3 percent will be pursued in 2027. If no further increase in spending is allowed when considering the budget in parliament and the macro framework is maintained, this is entirely possible.
(From the Institute for Market Economics)