EKIP– Expert Club for Economics and Politics A Different Opinion
The date is 08.03.2019. The then businessman - Mr. Asen Vassilev, publicly claims that the effective tax on a salary of 3,000 leva in Bulgaria is nearly 50%. In this calculation, Mr. Asen Vassilev also adds the due social security contributions with the clear understanding that this money is being spent on " a big theft, garnished with incompetence and incompetence ".
Two years later, Mr. Vassilev is a politician and in his opinion the maximum social security income (“ MSI”) should be increased. For this purpose, a new formula was invented for determining the MSI: a coefficient of 2.3 multiplied by the average salary for the previous year [1].
The arguments expressed in support of this idea were as follows:
- it was only about 78 leva per month - a small amount for people with a salary of 3,000 leva (Asen Vassilev);
- The average wage should be a function of the average salary and every year, when there is an increase in the average salary, the average wage should automatically increase (Asen Vassilev);
- the increase in the MOD was in the interest of people who are insured under the MOD, because in the future they would receive higher pensions (BSP and Mika Zaikova); and
- additional funds were needed for the envisaged "very good policies" and there would be no more thefts (Kiril Petkov).
1. Is it really only 78 BGN per month or is this " incompetence and incompetence " on the part of the providers?
According to NSI data, the average salary in Bulgaria in September 2021 was 1,543 BGN [2]. According to the participants in the discussion, the expectation is that it will be around 1,530 BGN for the entire year 2021. If we multiply this amount by the proposed coefficient of 2.3, we get the amount of 3,520 BGN. That is, an increase in the MOD by 520 BGN or nearly 17% is actually proposed.
The most common general insurance rate in Bulgaria is 32.7% (13.78% for the employee and 18.92% for the employer). That is, it is “about” 170 BGN per month. In addition, there are tens of thousands of self-insured individuals in Bulgaria who completely cover these over 30% insurance contributions themselves. For these individuals, the proposed measure means a direct reduction in their disposable income by 2,000 BGN per year. And this during a health and inflation crisis, which further reduces everyone's purchasing power.
2. Insurance is due for specific health and social rights and there is no logic in them being a function of the average salary in Bulgaria.
In this regard, the following should be noted. One of the goals in the PP's election program was that by the end of their mandate, the average salary in Bulgaria would exceed the threshold of 2,000 leva. Does this mean that after 3-4 years, the middle class in Bulgaria will pay social security contributions on the basis of over 4,500 leva per month (coefficient 2.3 x 2,000 leva), i.e., these people will owe nearly 18 thousand leva in social security contributions per year?
If that is the goal, why? Do people who earn higher incomes in Bulgaria consume more health services (nearly 25% of the social security contributions due go to health contributions), do they go on maternity leave for longer, do they use more sick leave, and do they experience more work accidents? Obviously not.
Insurance is due for specific health and social rights and there is no logic in them being a function of the average salary in Bulgaria, which can be artificially increased even with the increase in the minimum wage.
3. High-income earners have no interest in receiving higher pensions by paying higher insurance contributions to the state.
The third argument was that increasing the MOD was in the interest of people who are insured under the MOD, because this way they would receive higher pensions in the future.
People who receive high incomes could still voluntarily contribute to the “third pillar” in order to receive “higher” pensions later, or invest in other ways for their old age. Obviously, this argument is absolutely untenable and does not deserve further comments.
4. It is not true that the thefts have stopped, but that " many good policies " can be implemented with the funds saved from the leaks.
The main political thesis and promise that made the PP the leading force in the last elections were that (1) about 8 billion leva is stolen in Bulgaria per year [3] and that (2) these leaks can be stopped.
In Bulgaria, on a daily basis, we witness exactly how the pension and healthcare systems are being drained (through fake TELK decisions, unrealistic clinical pathways, misuse of state hospital funds, including inflated salaries of hospital directors, and so on). The arrogance of the fraudsters reached the point that even the Minister of Health himself was used for such a purpose [4].
If we assume that the information from the BSP is correct, that about 100,000 people in Bulgaria are insured under the MOD, then the proposed measure aims to collect about 200 million more for 2022 (i.e., this amount can be compensated for only 2.5% of the leaks calculated by Mr. Assen Vassilev).
However, it turns out that it is much easier and more attractive to hit the middle class that is providing itself with real incomes, rather than fighting the "leaks" of the broken buckets. And that is not fair at all.
[1] The idea was launched by Mr. Asen Vassilev and supported by representatives of the PP, BSP and Ms. Mika Zaikova from the ITN on 27.11.2021 during the discussions of the financial experts of the future coalition partners. It should be noted that the representatives of the DB were completely against it, but failed to convince the others.
[2] https://www.nsi.bg/bg/content/3928/%D0%BD%D0%B0%D1%86%D0%B8%D0%BE%D0%BD%D0%B0%D0%BB%D0%BD%D0%BE-%D0%BD%D0%B8%D0%B2%D0%BE
[3] https://profit.bg/balgariya/vasilev-i-petkov-8-miliarda-leva-na-godina-se-kradat-u-nas/
[4] http://www.focus-news.net/news/2021/07/15/2886956/ministar-stoycho-katsarov-az-sam-edin-horata-zapisani-v-pirogov-s-diagnoza-tezhka-chernodrobna-tsiroza-nikoga-ne-sam-imal-takova-zabolyavane.html
