The draft budget for 2025 prepared by the now regular Finance Minister Temenuzhka Petkova turned out to be an absolute farce and a mockery of society. The draft was again prepared using the reverse engineering method, in which the final result is first outlined, then the hard parameters and finally the rest is tweaked. Revenues were tweaked, just like in the December draft budget, only a little more modestly. Temenuzhka Petkova's project envisages both revenues and expenses this year to increase by 18 billion leva, which is a slightly more modest outlay than Lyudmila Petkova's project, where both revenues and expenses increased by 20 billion leva.
And now, as in December, the increase in expenses, to the extent that it is programmed to be carried out, is as good as certain, as the growth in revenues is desirable and without analogues in the fiscal history of the country. After in 2023 compared to 2022 revenues grew by only three billion leva, in 2024 compared to 2023 by five billion leva, now a much larger jump is being envisaged - by as much as 18 billion, and there is still no convincing explanation for them. Economic growth, as expected in December, is now set at 2.8%, which is an acceleration from the preliminary estimates that last year's GDP increased by 2.2%.
If Lyudmila Petkova was trying to sell us the story that she will collect more by overtaxing mining companies and banks, Temenuzhka Petkova claims that she will collect the money with improved work of the National Revenue Agency and Customs. The jump in tax and social security revenues is expected to be from 29.1% compared to GDP last year to 32.9. This cannot reflect the natural dynamics of economic processes. In the presence of adjustments in the tax system, such as VAT on bread and tourist services, for example, or the increase in the maximum social security income, all with a fiscal effect of under a billion leva, the increase in tax and social security revenues by 12 billion leva must come from increased collection.
This is unconvincing because:
- tax and social security revenues have never exceeded 30% of GDP in at least the last 10 years
- there is not a single reform in the revenue administration that would suggest such growth
- if by chance, after 10 months, it turns out that this feat has really been accomplished, it will mean either that the tax authorities have torn the private sector from inspections and administrative pressure without giving unprivileged enterprises a chance to breathe, or that the state has consciously refused to collect three percent of the gross domestic product and for at least a decade it has been giving it up to the grey sector.
The measures that the Ministry of Finance is proposing are outrageous and insulting to the intellect.
“Improving fiscal control by upgrading the information system and optimizing risk analysis“ is the first proposed action. Bravo. When will this happen? Tomorrow, on Easter, in July? The Ministry of Finance proposed exactly the same thing in the first weeks of Simeon Dyankov's administration. These were cables from the National Revenue Agency to customs. Identifying risky entities. And the result was so tragic that in the immediate months nothing happened, and in no year did the first Borisov government fulfill its revenue task,
“Lightening up the shadow economy in the field of fuels, by limiting the possibility of using receipts not received at gas stations to provide other entities with the purpose of issuing invoices on which to illegally deduct a tax credit under the VAT Act. The envisaged legal change reduces the possibilities for value added tax fraud related to the “trade” with receipts and, accordingly, with draining VAT“. In 2010, both large and small gas station chains were dissatisfied that the State wanted to install measuring devices, both on the tanks in which they keep the fuels sold, and on the pumps from which customers fill up. This meant that both each wholesale delivery to the gas station and each filling of individual tanks in people's cars had to be monitored. If, under the existing requirements for company vehicle logbooks, for which a tax credit is used, it cannot be proven that company cars were not refueled at a given time at a given gas station, then 15 years after Dyankov's push, no one has been willing to close this loophole.
The measure with the excise tax on cigarettes also reflects an approach from 2009-2010. Although this time there are prerequisites for success, because the increase is far more balanced.
The exceptions to the slight cost cuts are the Ministry of Defense, the Ministry of Interior, and teachers. In both Ministries, personnel costs are maintained as in the December draft budget, as well as in the teaching profession.
Pensions will increase not by 9%, but by 5%, because the formula for the increase will not apply the classic Swiss rule - the coefficient being equal to half the inflation rate and half the growth rate of the social security income. Instead, 80% of the weight in the coefficient is given to inflation, which is lower and only 20% of the increased social security income.
Investment costs are also reduced by one billion leva.
„The budget balance under the CFP for each year of the forecast period 2025-2028 is a deficit ranging from 2.2-3.0% of GDP with a downward trend. This is due to the provision of spending policies for 2025 and 2026, predominantly based on decisions from 2024 with the corresponding revenue measures, while for 2027 and 2028 the deficit decreases, respectively to 2.7 and 2.2% of GDP“, the Ministry of Finance reported.
Again, if the budget deficit this year is expected to be only 6.4 billion leva, and Bulgaria meets maturities of old debts for three billion leva, that is, the need for new loans is approximately equal to nine billion, it is inexplicable why the draft budget includes the possibility of drawing new loans from the state in the amount of 16.9 billion leva. Just like in December in the previous draft budget, this can be explained by reinsurance and a sign of taking into account reality. “We will paint a picture for the public to have peace of mind, and by the time they see the real one, we will have already withdrawn the necessary loans“.
The assumptions for new loans foresee the state debt reaching BGN 59.7 billion (27.7% of GDP) in 2025, BGN 70.5 billion (31.0% of GDP) in 2026, BGN 79.5 billion (33.5% of GDP) in 2027 and BGN 87.0 billion. (35.2% of GDP) in 2028.
If there is a practical conclusion to Temenuzhka Petkova's draft budget, it is that it is not possible to simultaneously debunk Assen Vassilev and have Bulgaria enter the eurozone. Either we will present an optimistic picture to Brussels, and once we get a date, indirect taxes and social security contributions will be raised in the course of the expected optimism, albeit temporarily, or Brussels and Frankfurt will show that they are nomenklatura people who do nothing and have let Bulgaria into the eurozone with an excessive deficit, but this will be seen a month after we adopt the euro. This also explains why the PP-DB suddenly, but at the expense of this, so fiercely demanded that Bulgaria request an extraordinary convergence report.