Shall we grow or not?

The question of whether the social security contributions will be lowered should have been solved during June. In the government budget law for 2007 it is written: "After June 15th 2007, The Council of Ministers, if there is fiscal ability, should propose to the National Assembly the appropriate changes in the law in order to reduce the contributions in the Pension fund with 3%, starting July 1st, 2007".

What happened after June 15th?

In short-nothing! So far it is not common knowledge if the government has sent a plan to the Parliament for the reduction of the social security contributions. Also it is not common knowledge whether an analysis has been established to show that there is no fiscal possibility and the changes should be postponed.

What does that mean?

First, the very obvious conclusion is that the Council of Ministers does not obey the laws.

Second, it is interesting to find out if any representative from the National Assembly would like to investigate why he has not received such a proposal.

Next, given the fact that so far there is not such a plan introduced to the Assembly, does that mean the government plans to spend huge amounts of money from the accumulated budget surplus for particular policies and which are these policies?

Is there a fiscal ability for the reduction of social security contributions?

The answer to this question has been presented to the press-conference this week, with the participation of Lachezar Bogdanov, Georgi Angelov and Svetla Kostadinova. This is the situation so far:

  • 1) The revenues from all direct taxes grow twice faster compared to the forecast of the Ministry of Finance.
  • 2) The budget surplus up to now is more than three times bigger than the planned surplus for the whole year of 2007
  • 3) The expected effects from the reduction of the social security contributions are more revenues in the budget, which means even bigger budget surplus at the end of the fiscal year.

Why shall we reduce the social security contributions?

Judging from examples from other countries, the effects from lower contributions are:

  • 1) 6% reduction of the contributions increases the grow of the GDP between 1.2% and 2.4%
  • 2) 6% reduction in the contributions decrease the unemployment rate with 2%
  • 3) 6% reduction in the contributions increases the employment rate between 3% and 4.8%
  • 4) In the long-run, lower social security contributions will increase the size of the economy and more capital for public goods will be created.
  • 5) One of the most viable reasons for the existence of the grey economy is the tax evasion.

For reasons hard to understand, the changes in the law are being postponed, even though those changes affect positively absolutely everyone (employers, employees, the budget)

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