Economic Policy Review ISSN 1313 - 0544

Some Observations on the First Year of the Government

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The first year of the government has already passed by and it is normal that this raises many analysis, evaluations and comments. It is almost impossible to cover the whole picture within a short text therefore I will concentrate on some key observations, that I find important and that may put the main framework.

There is no way not to focus on the budget that was a hot topic during the elections as also after the presently voted revision. Still before the elections the balanced budget was many times pointed out as a priority for the party GERB when the spending of the previous government was sharply criticized. On the whole the expectations were that the new government will also spend a lot – at least to build all that was promised, but it will be prudential and will not tolerate deficits. There was, of course, also the concern that the willingness to solve any problem and giving easy promises may lead to excessive spending that may put pressure on the budget. The expectation of a balanced budget arised from the official stance of the new government whereas the fears of excessive spending were hidden in conjectures what may happen. One year later it seems that the fears were more than righteous and that the promises of a balanced budget are easily forgotten.

The budget deficit is not a work of the previous government, but a direct consequence of the politics of the present authority – easy promises and new spending. In deed, in the last update of the budget there is much more spending that was warranted than cutbacks. Budget 2010 turned out to be a game of broken phone – at the end of last year the finance minister whispered “balanced budget” but at the beginning of the summer the circle was closed with “excess deficit”. All players in that game are ministers that have the only objective – to spend as much as possible.

The ministers from that cabinet want not only to spend but they become soft by any attempt for reforms and reductions. The important reforms are to be made at the beginning of the governance but that did not happen in that case. During the last year there were mentioned all the reforms anyone can imagine, but none of them did happen. The status quo mounted every attempt for a change. The administrative, pensions and health reform keep on being priorities for the government but only at words.

Obviously the government spends a lot but does it make it more effectively? The answer is rather not. It is true, there are some significant projects that build a good image of the government – the highway “Thrakia” and the sports hall in Sofia. The auctions for the highway were conducted well and that resulted in lower than the expected prices. The building of the sports hall also proceeds well. These are projects that also have their critics but in general the government can praise with them. But the significant projects do not tell the whole story. If these are projects that are observed by the media and the prime minister himself, the big spending accrues from lots of public projects and programs, that often remain hidden and are managed by that same administration, that refuses to change. Moreover an enormous part of the public spending is designed for pensions, health and education. In these areas no changes occurred so that we cannot expect that the government has begun to spend effectively.

This government may be good in spending for significant projects – we certainly will have a modern sports hall and a highway to the sea in 1-2 years but that does not mean that the clerks has halted wasting our money. Exactly the opposite, the government has enacted more spending without changing the status quo.

We are again in situation where we have to judge according to the promises of the government or according to our perceptions. The promises sound good – we will adopt a prudential budget in 2011, we would not touch the taxes, we will begin reforms in health and pensions. The fears are, however, there – you promise and spend a lot, you touched the reserve and it would not be a surprise if you encroach on the taxes, you slowed down the reforms and they may not happen. These are two completely different scenarios and hopefully this time the government will make exactly that what it says it will make and it will disprove our fears.

The article is part of the IME campaign “State Expenditures in Bulgaria”.