Economic Policy Review ISSN 1313 - 0544

IME Alternative Budget with Low Taxes 2011

11.05.2011
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Summary

 

18 October 2010

 

The alternative budget of IME is made for the eighth consecutive year. Our goal is to show alternative fiscal policy, which relies on low taxes, balanced budget and bold reforms.

2010’s budget deficit is excessively high and therefore a reasonable budget for 2011 is only possible by making reforms. The position of IME is that the government should not postpone measures aimed at achieving more efficiency in budget spending, combined with more freedom for people:

  • 20 percent spending cuts in state bodies, ministries and agencies – encouraging real reforms in each department
  • Public servants, police and armed forces to pay their social contributions – the rules of the labor market should be equal for all, regardless of whether they are employed in the private or the public sector;
  • Freedom for local authorities – more freedom to municipalities’ own revenues and removing their restrictions on certain policies;
  • Freedom for universities and BAS (Bulgarian Academy of Sciences) – universities should be given freedom to pursue their own policies, including in terms of tuition fees and number of students. Funding of universities must depend more and more on own revenues rather than transfers from the budget.
  • Freedom to BNT (Bulgarian National Television) and BNR (Bulgarian National Radio) – removing the restrictions on advertising and opportunity to increase own revenues. Such policies not only will not hurt those media but will enable them to pay back their debts and develop independently without relying on the state budget;
  • Suspension of national payments (additional to EU subsidies) in agriculture – farmers receive hundreds of millions EU funding and additional burden on the budget in the form of further national payments is not justified;
  • Strong reduction on the subsidy for railway transport – the state pours nearly half a billion BGN per year and guaranteed debt for over 700 million without getting any indications of positive changes. Railways should focus more on their customers and less on the state budget.
  • Privatization and concession – provide revenues for the budget, more competition and eliminating corruption.


Alternative budget 2011 relies also on tax reform:

  • Reduction of social security contributions by 5 percentage points (health insurance – by 2 percentage points, pension insurance – by 3 percentage points)
  • Abolition of dividend tax (now 5%)
  • Reduction of the tax on sole traders to 10% (now 15%)
  • Suspension of tax exemptions for farmers and sailors, food vouchers and the preferential VAT rate for tourism. 

The budgetary effect of lower taxes on dividends and sole traders and the repeal of tax exemptions will compensate each other and there will not be burden for the budget.


The proposed reforms ensure a balanced budget but also an opportunity for reforms in health and retirement systems

  • Health care reform – removal of NHIF’s (National Health Insurance Fund) monopoly, reducing the health insurance contribution to 6%, which are going to selected by the insured private health fund; the reserve for health (part of the fiscal reserve) ceases to be funded by contributions but also is not spent and serves as a guarantor of reform. All money goes to health and is out of the hands of politicians; in practice the health care system is out of the consolidated budget. 
  • Pension reform – gradual abandonment of the solidarity model and transition to personal retirement accounts; reduction of pension contributions to the state by 3 percentage points and increasing the contribution to personal accounts by two percentage points; stricter rules for early retirement and reconsideration of all disability pensions. 


The proposals in the alternative budget for 2011 lead to more choice, personal responsibility and greater efficiency of public spending. 

This policy will restore the confidence in the public sector and the economy, which means more investment, higher growth, less gray economy, low unemployment and lower interest rates. All this is achieved not by reckless administrative measures (such as imprisonment for nonpayment of insurance and regulation of interest rates) but by prudent fiscal policy.

To ensure this policy we also offer the introduction of a fiscal board, which guarantees preservation of the achieved balanced budget and prevents the government from populist spending of public funds. 


2011 draft budget and alternative budget of IME

million levs

2011

2011 IME

Budget revenues

25,844

23,432

Budget expenditures

27,807

23,411

Balance

-1,963

21



Contact: Petar Ganev, ganev@ime.bg; 02/952 62 66

Press conference: http://ime.bg/bg/articles/materiali-ot-preskonferenciya-alternativen-dyrjaven-byudjet-2011/