The anti-market reforms of the Oresharski cabinet – part one

In just over a year in power, the coalition led by the BSP has proposed, submitted for consideration and adopted quite a few changes. The effects of some of them are not yet visible, and when they do appear, many may not associate them with the current rulers. In any case, we can already prepare an anthology of the anti-market actions and reforms that the "Oresharski" cabinet introduced.

The list of anti-market activities of the cabinet cannot be left without the planned second (after the issuance of 1 billion leva in government securities last year) increase in debt. Shortly after the announcement of this plan, the international rating agency Standard and Poor's downgraded Bulgaria's credit rating to BBB- (i.e., to the lowest rating in the "Investment Grade" category; if it is downgraded again, the government debt will collapse into the "Non-Investment Grade" category). This means that the debt that the government will issue will become more expensive for the taxpayers who will repay it. Moreover, there are currently no plans to end the budget deficit policy. [1] Another negative effect that the budget deficit policy will have on the economy is the highly likely reduction in foreign investment, since the S & P rating is necessarily included in the calculations of entrepreneurs when deciding where to invest their funds.

A negative signal for investors was also the moratorium imposed in the fall of 2013 on the sale of land to foreigners. Although the Constitutional Court declared the text unconstitutional in January of this year, it is yet another indication that the government is willing to sacrifice the private sector (as well as everyone else) to satisfy the demands of a far-right party and its nationalist supporters. Similarly, the licenses of private electricity distribution companies were in the balance, again due to demands for nationalization and a “fight against capitalists”. [2]

The genesis of the problem with electricity distribution companies, which operate in an almost completely regulated, non-competitive and to a large extent unpredictable environment, dependent entirely on the will of the party with the largest majority in parliament, is largely rooted in the political will to avoid a repeat of the winter protests of early 2013. To “insure itself”, the Oresharski cabinet reduced the price of electricity from January 1, also cutting the technological costs of the three EDPs. But what it achieved through the planned price reduction was actually a contraction of the companies’ profit margins – a harmful measure that could lead to an even greater contraction of the opportunities for investment and renovation of the electricity transmission network under their control.

The experience with the ERPs is not the only example of the BSP government introducing risk into the business environment. Over the past year, we have witnessed changes to the Labor Code, according to which companies can now hire young people up to 29 years of age with an employment contract without experience in the specialty, with a mandatory requirement to assign them a mentor. The change de facto eliminated the right to free negotiation between the parties and for a number of reasons not only made it difficult, but in many cases completely interrupted internship programs, achieving the opposite of the planned effect. In addition, we are witnessing constant political talk and proposals from some parliamentary parties against entrepreneurs. In January of this year, there were proposals (which have not yet been adopted) to prohibit employers from laying off employees, closing parts of companies or being jointly and severally liable for unpaid debts. This further reduces the chances of increasing investments, respectively - for rapid and stable economic growth, because regardless of whether the measures are adopted, the will for populist actions increases the risk for entrepreneurs.

Another anti-market, populist and harmful action was the next increase in the minimum wage from January 1, 2014. It had already been increased a year earlier by the GERB government from 290 to 310 leva, but the Oresharski cabinet increased the minimum monthly wage by another 30 leva. In words, the measure aimed to increase the standard of living of workers. In practice, however, the higher minimum wage is an effective barrier to low-skilled workers, especially in underdeveloped regions (such as the North-West, for example). A central increase in the cost of labor is also a guarantee that some of those already employed will lose their jobs, although few non-economists would probably attribute this to the increased minimum wage. [3] The negative impact of the minimum wage on employment was even noted by the EC in its 2013 report. The new wage threshold will make not only those laid off poorer, but also everyone else, due to the reduced amount of production of goods and services in the creation of which they participated. The increase in the minimum wage and other transfers comes against the backdrop of the already discussed budget deficits.

While not necessarily an anti-market measure, increasing the budget of the wiretapping service without eliminating it or at least reducing its powers (something the BSP did almost upon taking office) is contrary to the concept of individual freedom. The service is still under the direct control of the party with the largest majority and will once again be able to be used for personal interests, with the difference that taxpayers are now paying more for it.

In part two, we will examine the more important anti-market actions and policies in other industries as well.

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