Economic Policy Review ISSN 1313 - 0544

Tax Freedom Day in Bulgaria – May 4th; +10 Hidden Days Due to the Deficit

06.04.2011
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Till May the 4th Bulgarians will work in order to pay their taxes for 2011. Figuratively speaking, this is the day on which citizens will stop working for the government and start working for themselves. The date is symbolic, showing when all of the projected revenue will be collected if everything earned is immediately confiscated – we call it day of freedom from government, but in English speaking world it is known as the Tax Freedom Day.

In Bulgaria, this day traditionally is somewhere in May and its early appearance in the last 3 years is largely due to the emergence of budget deficits. In other words, the state seems to confiscate less, but it still spends as before – at the expense of accumulated reserves and new debts. If we continue with the symbolic calculation, then from May 4th to May 13th are the days when taxpayers had to work extra for the state if the budget was balanced – thus to cover the deficit for 2011. In reality these 10 days will be worked out in state’s favor sooner or later.

 

Methodology

The estimation methodology of this symbolic date is relatively simple – the consolidated revenues in the state budget are compared to country’s GDP, using only official data or government forecasts. The revenues rather than expenses are used because they show what is taken from citizens or business during the year. In 2011 Bulgarians will averagely produce 211 million levs everyday, measured by projected GDP (as estimated in Budget 2011). Therefore, in 2011 124 days will be needed to reach the expected 26.2 billion revenues in the budget.

The use of official government forecasts is the most correct way to make this calculation, which does not mean that reality will be exactly the same. For example, when calculating the date for 2010 we also used official estimates, but they seriously clashed with the reality – the collapse of the revenues and the emergence of deficit moved the day much earlier.

There are other changes that shifted the day for all of the previous years. NSI (statistical office) revised GDP data by adding the informal economy, which, of course, purely statistically increased GDP in the last 15 years. This automatically reduced the rate of redistribution and intervention in the economy and shifted the Tax Freedom Day earlier – by about 5 days.

 

Earlier Celebration?

The focus on revenues has somehow false sense of more freedom. In the course of the crisis the revenues from VAT and excise duties and corporate tax were severely affected, which additionally moved the date earlier. Only revenues from labor taxes (income tax and social contributions) remained relatively stable.

In one way or another, if we ignore the revenues, closer look at tax rates reveals that the picture is quite different – preserving the basic taxes such as VAT, corporate and income tax, but increases in social contributions and minimum thresholds, increase in excise and property taxes, as well as high quasi tax burden. All this comes to show that conscientious taxpayers lose their freedom, often at the expense of others who are “distracted” and not paying.

And yet, every Bulgarian citizen fills the treasury in one way or another. Most days from 2011 we will spend to fill in VAT revenues – 31 days. Revenues from excise duties would take us 18 days. For social contributions we will need almost a month – 19 days for social security (pension mostly) and 8 days for health contributions. Revenues from income taxes we will fill in 10 days and those from corporate taxes in 8 days. Widely discussed during the year property taxes would cost us 3 days.

 

Tax Freedom Day & Deficit/Surplus Correction 2000 - 2011 

Source:IME, Ministry of Finance, NSI

 

The above chart shows the day of freedom from government down the years (in blue) as well as the so-called deficit/surplus correction – the effect on the day if the budget was balanced. If there is a surplus, then taxpayers would have worked extra for the state, thus they have paid taxes, the revenues from which were not spend by the government – these days are represented by the red line in negative values.

If there is a deficit, then taxpayers will sooner or later work out what was already spent; these are the positive values of the red line. Placing the lines one over another, they indicate that the picture in recent years has not changed significantly, i.e. we are not getting more freedom from the government, despite the shift of the day earlier.