Fulfillment of the Budget during 2007

The Ministry of Finance announced the preliminary data about the fulfillment of the consolidated budget for 2007. The revenues reached over 24 billion levs, expenses – almost 21.4 billion levs, while the surplus is 2 111.6 million levs.

Compared to 2006 the general revenues to the budget increased by 20.2%, which is fare off the forecasted value – according to the Report about the Bill of the State Budget for 2007 – the expected revenues for the year were 21.3 billion levs. Hence, the surplus is over 2.7 billion levs. The reasons for this development must be sought in the conservative forecast, which was made because of the country's membership in the European Union and the changes in taxation, which were required, as well as the positive reaction of the taxpayers to fiscal stimuli. An example for that was the Value Added Tax, which is a main source of revenues for the budget. In this case was changed the taxation mode and the so called inter-union delivery and inter-union purchase were introduced, which replaced respectively the export and import from the EU. Initially this led to certain delays of the revenues to the budget and at the beginning of the year the revenues were lower than in 2006.  Than the tax administration and the companies adjusted to the new mode of operation, the revenues from VAT increased and at the year end the growth rate reached 13.3% (or almost 775 million levs). The factors for that are related mainly to the increased import of goods and services. Although the revenues from VAT increased their share in the overall tax revenues is reduced during 2007 with 1.6 percentage point and reached 34.1%.

Significant increase of revenues is observed with the excise tax (32.7%, which is due mainly to taxing additional goods and services, as well as of increased rates for some groups of goods). The largest share of the revenues from excise tax on fuels – 50.9%, next is tobacco goods – 40.6%, while from the alcoholic beverages it is 5.4%. The growth of the cigarettes is due to a large extend to the liberalization of the market (from the beginning of 2007 the prices of the imported cigarettes are not defined administratively), which allowed the reduction of some prices and expansion of the tax base.   As a whole the revenues from excise tax during 2007 are 17.2% of the tax revenues, which is an increase by 1.9 percentage point compared to the previous year.

With the direct taxes dynamic developments could also be seen, the revenues from corporate taxes are significantly higher than the budget forecast – respectively 1 676.6 million levs while the forecast was 1 410.7 million levs (over fulfillment of 18.8%), while the annual growth is by 39%.  This is taking place, while the tax rate of corporate tax from the beginning of 2007 was reduced from 15% to 10% (i.e. with 1/3). It should be made clear that part of the revenues in 2007 take place under the old rate (due to the annual balancing for the previous year).  Regardless of that, the increase in the tax base due to the fact that some of the profits came out to light is apparent and again proves that the people react to the reduction of the tax rates by declaring closer to the actual incomes. As a whole the share of the revenues from corporate taxes is increased by 1.3 percentage points from the total tax revenues and reaches 8.7% of these.   

The developments with the social security are also positive. There a reduction of the rate by 3 percentage points was passed at the beginning of October. The growth of the revenues from social security payments during the first 9 months of the year is 14.5%, while for the entire year it is 13.4% (for the last three months of the year the revenues from social security payments had increased by 10.7%). In other words, the reduction of the growth is much smaller compared to what should be expected from the reduced rate, which is a sign, that the tax based was increased. The factors for that are the increased employment, the growing social security income and the declaration of incomes closer to the actual. As a whole the share of the social security revenues in the total tax revenues is decreased in 2007 by 1.1 percentage points to 25.3%. The revenues from personal income tax reached over 1.8 billion levs compared to the forecast of 1.446 billion levs or a surplus of 25%.  Their annual growth is by 36.5% (484 million levs), which to a large extend is due to the growth of incomes in the country and the minimal changes which took place during 2007, and which were in raising the nontaxable minimum. As a whole their share in the tax revenues increases by 1.3 percentage points and reached 9.4%. 

The total budgetary expenses were increased by 16.9% or almost 3.1 billion levs during 2007. Only during the month of December the Government spend 4 164.9 million levs, which is over 7,4% of the expected GNP for the year. In comparison – the budgetary expenses during the year had been 1 562.9 million levs average per month. In other words, only for one month are accounted expenses which are 2.5 times grater than the average. This fiscal injection will reflect on the data about the balance of payments during the month and mainly on the size of the imports of goods, which will probably increase. Pouring out such large amounts into the economy for a short period, which coincides with a period of increased consumer spending due to the holydays, only increases the effect of it. 

As a whole the growth of the expenses is the greatest since the introduction of the currency board.  Although the budget surplus is maintained at almost 3.8% of the expected GNP, inflation is high and is combined with a deficit of the current account and quick growth of the salaries. Significant factor for these developments is the increased money supply in the country. Under such conditions, however the policy of reducing the restrictions on the budget – even temporarily, is not recommended. If it is necessary to make some expenses, they have to be planned more evenly and not to pile up at the end of the year. 

The largest growth of the budgetary expenses is in the expenses for salaries and current maintenance, which increase with over 15% during the year, as well as the capital expense – over 50%. Such large increase of capital expense must have a positive effect on the economy in the future, if they are productive. The low effectiveness of the public sector is a result of many factors, amount which bad management and insufficient transparency of tendering certain public projects, indicate that it is possible part of the money to be spend without any benefits to society.

As a whole the redistribution through the budget, measured through the general revenues, during 2007 reaches about 43% of GNP, while it was 40.8% during 2006. If they are adjusted with the aid, which source are mainly European funds, the revenues are about 40.8% of GNP during 2007, compared to 39.5% of GNP in 2006. Hence, the state is taking a larger share of the personal incomes, which means that their ability for independent choices of how spend the money generated by them is limited. Such policy is unfavorable and reduces the ability for economic growth. This may be one of the reasons for slight reduction of the real growth during 2007 and the potential of the Bulgarian economy in the longer run. 

Table: Fulfillment of the consolidated budget (mil. levs)

 

2006

2007

change

Revenues and aid

20 023.4

24 063.3

20.2%

Tax revenues

16 328.7

19 323.9

18.3%

Expenses

18 267.4

21 356.4

16.9%

Deficit/Surplus

1 756

2 111.6

20.3%

Source: Ministry of finance


Related publications.