Execution of the budget for the first half year

The Ministry of Finance published the data about the execution of the consolidated budget for the first half of 2008. The revenues are over 14 billion levs, while the expenses are 9.89 billion levs, which means that the surplus is over 3.78 billion levs or over 5.5% of the expected GDP for the year.

The increase of the revenues is significant – by 24.7% compared to the same period of 2007, where we have to take into account the receipt of 865 million of European funds. The tax revenues increase by 21.9%, the non-tax – by 6.4%, while the assistance – by almost 229%, where the source is almost exclusively European funds.

In the tax revenues the greatest increase is in the VAT – 31.6% and the corporate tax – 30.5% respectively with 931.3 million levs and 333.7 million levs in absolute terms. In the personal income tax the growth is with 15.9% or 129.7 million levs, in spite of the significant reduction of the maximum rate – from 24% to 10% at the beginning of the year.

The expenses in the consolidated program increase by 12.2%, which still assumes that the rate of increase will accelerate until the end of the year. According of the Bill for the Budget for 2008 the expenses are forecasted at 25.37 billion levs, which means that a growth of 18.8% is forecasted compared to the results from 2007.

The expenses for subsidies grow the fastest – with 52.4% and the expenses for salaries and other payments to the staff – by 19.5%, while only the expenses for interest are reduced by 11.2%. In absolute terms the growth of social expenses is by 411.4 million levs, the expenses for salaries – by 270 million levs, current maintenance – by 183.4 million levs, and the subsidies – by 171 million levs.

The existence of such significant surplus of the revenues over the expenses in the consolidated budget allows for increase in the spending at the end of the year. This however, raises the question whether or not it is possible to avoid achieving such results. One such method are lower taxes, and we review below several alternatives. Without taking into account the dynamic effects from the elimination of the taxes indicated, we could expect the following results for the consolidated budget for the first six months of 2008:

• If the corporate tax is abolished, the surplus would be 2.354 billion levs;
• If the personal income tax is abolished the surplus would be 2.835 billion levs;
• If the social security burden was removed the surplus would be 1.277 billion levs;
• If the taxes on the personal incomes and the corporate tax were abolished the surplus would be 1.4 billion levs;
• If there are not personal income tax and social security payments the surplus would be 331 million levs.

Naturally, these calculations do not take into account that some expenses have been delayed or are planned for the second half of 2008. They are indicative, however, that it is possible to continue with the policy of maintaining a budget surplus and still implement significant reduction of the direct taxes, since for the indirect there are strict requirements of the European Union.

Over all, the Government will have the comfort at the end of the year to use the budget funds for implementing projects which are not sufficiently effective. Significantly better effects for society will be the reduction of taxes or a pay back to the taxpayer in some form.