Food voucher market research in Bulgaria

State of the system, socio-economic impacts and prospects for liberalization

This study provides a macroeconomic, socio-economic and fiscal assessment of the possibility of liberalizing the food voucher system in Bulgaria. You can read the full text of the study here.

It takes into account the development of the country since 2012, especially the dynamics of household incomes, wages and the labor market, and provides new arguments in favor of liberalizing the system. The study assesses and analyzes the direct and indirect benefits and costs of the system in its current form from the perspective of the state budget, the economy and household budgets. For greater accuracy and comprehensiveness of the analysis, the effect of the food voucher system on the informal economy, the added value created in the local economy and the redistribution of funds within households is also taken into account.

The study examines three groups of reasons – economic, fiscal and socio-political – for which we can expect positive developments if the monthly limit of food vouchers is increased and if the quota principle is replaced by a market-based system.

From a macroeconomic perspective, wage and productivity increases have led to a depreciation of the monthly voucher limit per person (60 leva) since the system was established in 2007. The depreciation is almost threefold, with inflation not being the leading factor, but rather the dynamics of wage income, the increase in the minimum wage, employment, and productivity.

The use of food vouchers is associated with increased productivity and healthier eating habits among employees. At the same time, the share of food expenditure in total household expenditure decreases. This leads to positive fiscal effects, which are described in the study below.

Our calculations show that if the total quota is liberalized and it is assumed that the use of food vouchers increases by 33%, 10% and 10% respectively on an annual basis over the next three years, the direct tax costs to the budget are relatively insignificant.

The indirect effects of the increase in disposable income of households and companies and the expected effects of liberalization, such as the creation of new jobs, are likely to offset the tax costs of the system for the state budget. Depending on the chosen liberalization scenario, the possible indirect effects for the first three years are the following:

• The number of new jobs associated with the use of food vouchers ranges from 1,679 to 2,068 per year;
• Direct tax expenditures for the budget will most likely be offset by indirect (other than VAT) fiscal revenues from income tax and social security contributions in the amount of BGN 11 million to BGN 15.7 million. The redistribution of household expenditures towards non-food products would generate additional benefits;
• The socio-political rationale for liberalization is related to improved household budget structure and additional benefits from improved efficiency of social policies at the company and state levels.

Previous studies [1] show that nearly 85% of companies increase employee salaries by the value of the vouchers as they compete for qualified personnel in the labor market, and most of them consider food vouchers as an important part of their corporate social responsibility policy. [2]

According to the International Labour Organization's Food at Work study [3], the food voucher system brings benefits to employees, companies and governments, as it increases purchasing power, improves health and safety at work, increases productivity and leads to a lightening of the informal economy. Of all 19 EU Member States that have a functioning social voucher system, Bulgaria remains the only country with a quota-based voucher system.

This study examines different scenarios for liberalizing the system, following the example of other countries that have introduced a voucher system as a form of social policy, and assesses the effect of such liberalization on the state and food voucher users.

The calculations in the report use conservative assumptions on the initial values and parameters. Key sources are the socio-economic analyses of food vouchers and the recent field studies of the system conducted by KS2 and Industry Watch in 2010 and 2012.

Statements

• With the positive development of the economy and the increase in wages, productivity, household budgets, disposable income of companies and households, the real value of the monthly limit of food vouchers (60 BGN per person) has decreased three times since the introduction of the system. Inflation, which is usually used for indexation, is not the leading factor;
• These positive effects speak of an improved quality of life. However, they also speak of:

A. The fact that there are no risks in liberalizing the system and increasing the monthly limit of vouchers per person;

B. By maintaining the current reporting system, the voucher system will be self-regulating;

C. The leading factor in the process will be competition among employers for skilled labor, regardless of macroeconomic factors such as consumers' propensity to spend or save;

D. Bulgaria will be no different in this respect from other EU member states that use food vouchers.

• The macroeconomic precautions and fiscal conservatism of the period preceding the creation of the food voucher system are still valid today, but other macroeconomic assumptions of that time – high government debt-to-GDP ratio, outstanding government liabilities, relatively low wages, high unemployment, and low productivity – are not a problem today.
• There is no reason to assume a significant loss to the budget either from liberalizing the quota principle or from increasing the monthly tax relief for one beneficiary.
• Moreover, any lost tax benefits would inevitably be offset by the expected development of the economy and the labor market, a shift in consumption to other economic sectors, higher incomes, and greater revenues from social security and taxes.
• Microeconomics suggests that there are natural limits to the saturation of the food voucher market. Under the scenarios developed of a 33-10-10 percent increase in the first three years (while maintaining the monthly relief per person), the workforce covered by the system would be about 19 percent in the third year after liberalization.
• These expectations are confirmed by NSI statistics and international comparisons.

| Full text of the analysis |

[1] See: The use of food vouchers in Bulgaria – a field study report.

[2] A/B/C Edenred National Representative Survey, B2B Trade Nets, June-August 2017

[3] Vaniek, S., Food at Work: Solutions to Malnutrition, Obesity and Chronic Diseases, International Labour Organization, Geneva, 2005.

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