EKIP– Expert Club for Economics and Politics A Different Opinion
This week, the Council of Ministers approved the draft law on the state budget for 2020. It was announced by Finance Minister Vladislav Goranov as realistic, balanced, and without surprises.
Indeed, "no surprises" is an accurate description - Budget 2020 carries the same policy spirit as the previous ones. But, fortunately, unlike the one in 2019, this year's budget does not move one more step to the left.
Let's do a quick analysis of the newly adopted budget and discover what positive and negative things it offers us.
Positive: There is no increase in the tax burden. Something that happened all previous years, by raising social security contributions or the maximum social security income.
Negative: No reduction in the tax burden. Over the last decade, not a single tax has been reduced, at the expense of many increased ones. Higher collection and budget growth are a good prerequisite for tax reduction.
Positive: This year's budget is a smaller percentage of GDP than last year. 36.9% compared to 38.2%
Negative: This year's budget is the largest ever – over 46 billion leva. This is an increase of over 3 billion leva (last year the increase was about 6 billion leva), but it does not correspond to the environment. The budget is growing by 7.5%, with about 3% economic growth.
Positive: The 2020 budget is balanced. The vicious practice of recent years of projecting a deficit, even though the budget actually comes out in a surplus, and spending the surplus without parliamentary approval, is being stopped.
Negative: Budget 2020 once again does not provide for a surplus to be preserved as a buffer in case of an (increasingly expected) economic crisis.
Positive: Teachers' salaries are increasing. This increase is necessary for good education, the prestige of the profession, and the fight against the shortage of personnel in the field.
Negative: All salaries in the budget sphere are being increased by 10% (as last year) without considering efficiency and reducing the number of civil servants. Currently, they are over half a million people. Such an increase in current expenses can be extremely unfavorable when a crisis comes, because they cannot be easily reduced in subsequent budgets, in which revenues would be lower.
Positive: The government debt to GDP ratio continues to decrease and this trend is forecast to continue. In this indicator, we are among the leading countries in Europe.
Negative: Funding for education, healthcare, defense, and the pension system is increasing, without any serious reforms being planned for these apparently problematic sectors. Over the past decade, money in these areas has increased many times, but according to international studies, there has been no significant improvement in quality. There are also no reforms planned for state-owned companies such as BDZ and Railway Infrastructure, which are a serious item in the budget.
There is no mechanism for reporting the effectiveness of funding - what improvement has been achieved for each given lev.
Positive: Unlike last year, unions are not satisfied with Budget 2020. They declared last year's budget the best ever. The unions' demands for fiscal policy generally carry left-wing ideas.
Negative: The minimum wage is increasing. It is very clear why this is a bad thing. Although the negative effects are not felt tangibly now that we have economic growth, if the economic situation worsens, it could lead to an increase in unemployment, especially in areas with a lower average wage.
Negative: The economic growth forecast is too positive - 3.3%. The European economy is slowing down, the approaching crisis is expected and the growth forecast should be more conservative.
In summary: When drafting the 2020 Budget, there is no significant difference in the revenue and expenditure policy compared to previous budgets. Although there is some improvement, the same patterns are followed as in recent years. The budget does not do much to improve the economic environment in Bulgaria, but it does not ruin it either. A big minus is that the expected coming crisis is not taken into account and no measures are taken to prepare for it.
