Economic Policy Review ISSN 1313 - 0544

The insufficient measures

Author: IME / 17.05.2010
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The government measures have finally been finished – there are whole 60 measured proposed which are supposed to “support” the employment, households, businesses and the fiscal position. The government paper is far more comprehensive than expected. In addition to covering-the-budget-hole measures there are other non-direct budget related measures proposed.

The whole last weeks clamour was dedicated to a single problem – will we patch the budget or not? All these meetings discussions and speeches were because of this issue. The budget hole was calculated to 1.6 billion leva and the government document had to fill it in. In our humble opinion this task was not achieved – the document lost its budget focus thus the measures proposed won’t bring the 1.6 bln. effect anticipated.

The document contains one leading anti-crisis and budget measure, literally 10% current expenses limitation of the authorizing officers. One way or the other the current administrative expenditure had to be reduced and the existence of such a measure was inevitable. Government forecasts show 450 mln. budget savings which is almost 1/3 of the desired effect. It is not very clear where the whole billion remaining will come from.

The tripartite council’s expectations are that these money will come mainly from carbon emissions sale worth 500 mln. though this sounds aspirational. We expect serious discrepancy between estimates and real revenue here. Privatization is also expected to generate serious 250 mln funds. However these earnings are going to be put bellow the bottom line as budget financing and won’t help shrink the deficit but only its financing. The estimates are questionable too.

Besides the budget measures there are some labour market measures worth noting. In time of crisis the need of flexible labour market is stronger than ever but this is not what the tripartite council’s position – minimal salary increase, foreign workers access limitation, imposing collective labour agreements, subsidized employment extra spending, qualified workers observation and distribution system and so on.

In short: 1) no main taxes are going to be risen for now, which is wonderful but requires extra expenditure cuts if we want to balance the budget; 2) administration personnel cuts which are sorely needed but insufficient by themselves to balance the budget; 3) labour market madness. These are the main accents and the conclusion – the budget is under very serious threat!

 

 

 

Effect in mln leva.

IME assessment

+/-

IME comment

 

Fiscal support measures

 

 

 

1

Recruitment of additional internal and external financial resources aiming at fiscal reserve consolidation.

 

+/-

Extremely vague measure because no means for completion are mentioned. If it is through debt emission only as a last resort will it be justified when other opportunities (privatization, concession, lease, public property rent) are exhausted.

2

Accelerated AAUs sale (Assigned Amount Units) till 50 mln tones through national green investments system.

500

+

A good measure in principle but we doubt the unit trade system will start in the next few months (see measure 32 for the changes needed), it is even less probable that it will generate 500 mln. leva till the end of 2010. 

3

Remaining minority shares privatization through the Bulgarian Stock Exchange, the proceeds of which are received in favor of the state budget.

250

+

Surely it is good to privatize but not only minority shares. But privatization revenue is put bellow the budget bottom line, i.e. they are not earnings but only deficit financing. In this sense they do not solve the expected big budget deficit problem.

4

Liberalization of the “Silver fund” and private pension funds investment regime so that they can invest in low risk finance instruments.

 

-

The Silver fund is a part of the fiscal reserve and even if a minor return increase takes place this again won’t help the budget deficit. Another issue is that a more liberal investment regime in Bulgarian instruments creates unnecessary risks.

5

Temporary suspension of preferences granted to the budget offices of imports exempted from VAT and customs duties.

 

+

Yes, there should not be any preferences, but it would be nice to consider how much additional revenue this budget measure will generate (which clearly is not that much).

6

Setting up a public record for:

- State and municipal property leased

- Agricultural land from the state and municipal funds and land rent contracts concluded.

 

+

Good measure, albeit with more long-term effect than an immediate fiscal effect within the year. It can be expected that public scrutiny would increase these contracts collection and will bring rental levels closer to market ones.

7

Development of regulatory change in order to increase the duration of lease contracts. Supply of 900 thousand decares for pre paid long-term lease and sale of 100 thousand decares through public auction.

164

+/-

It is not clear where the additional 164 million resources will come from  - whether from long-term contracts (then the effect is purely an accounting, i.e. transferring the sum of the next few years to this year) or from land sale (then again is the Section 3 comment applicable to privatization receipts).

8

Introduction of а final tax on income from cash and object gains derived from gambling under the Gambling Act, as well as other games in which profits are determined randomly. Delegating rights to the Ministry of Finance, after extensive analysis and opinion of the Gambling Commission and the Association of gaming operators to offer a solution to the government.

80

+

This is like any other income and should be taxed. Thus  existing preference is removed. Let's hope that it will create conditions for good collection.

9

Change the way of insurance premiums taxation in accordance with Directive chl.157 /2009/138/EU following consultations between the Ministry of Finance, the Financial Supervision Commission and the Association of Bulgarian Insurers.

 

-

Insurance business is business like any other, i.e. should be levied on its profit. Any other balancing tricks show tendentious attitude and  search for victims attempt.

10

Recovery of the calculation advance payments factor by the Corporate income tax act for 2010, determined by the Bulgarian National Budget Act from 1 to 1.1

50

-/+

The measure is again a pure accounting trick to do previously budgeted tax revenues.

11

Increase the state dividend from state companies from 50 to 80 percent with a change in the Implementation of state budget order for 2010

26

+

OK, but the fundamental problem here is not the present rate of dividend but in low efficiency and profitability of many public trade companies.

12

50 per cent revenue deduction from enterprises with dominant state and municipal participation to government revenue, respectively under the municipal budget, in accordance with the 2006 order.

 - § 31 Bulgarian state budget act 2005

25

+

OK.

13

Doubling the tax on houses with tax assessment of over 300 thousand and the tax on cars with an insurance value of over 70 thousand, the personal yachts and aircrafts tax is tripled.

35

-

We have always defended the idea of tax equity, because the higher tax base anyway implies a higher absolute amount of tax. Most likely collection of local taxes will shrink even more, ie net effect may be negative. In boats and planes collection of this additional tax will be close to zero as they can easily be registered in foreign countries with favorable tax treatment. Purely populist measure.

14

Reduction of the SSC(Social security code) from 75 days to 30 days for payment of cash benefits for temporary incapacity, in cases of dismissal.

15

+

We support - will reduce the social security drain.

 

Public expenditure reduction measures

 

 

 

15

Adoption of a timetable for accelerated development of eGovernment in the full range, following the best example of "E-Government" in the EU for improving the administrative staff, improving the business climate, reducing corruption and increasing transparency and efficiency of public expenditure and reduction of all service fees used by electronic means.

 

+

Very important for increasing the efficiency of administration, we have recently released a special study on this topic.

16

Outsourcing government services to private contractors.

 

+

The more the better - besides administration decline, the services are doing a better quality (such as shown by the practice of private bailiffs).

17

Establishment of concessions on natural resources and road infrastructure within 2010.

15

+

The sooner and the more, the better for the budget and the whole society. Developed countries practice certainly proves it.

18

Government to propose to Parliament limiting party subsidies with 15 percent.

7.5

+

Support, a good option for saving.

19

10% running costs of authorizing officers reduction, except for state mandated activities, including applying uniform cost standards in education and social care. In departments that have fulfilled their obligations under the Decree № 196 of 2009 for optimization of the staff, the restriction does not affect the funds for salaries and other earnings. Within one week Ministry of Finance to propose necessary changes.

450

+

The first logic measure, which should be done first, but there should be no exceptions to the rule of 10 percent reduction of current expenditure.

20

Reducing the budgets of state and municipal institutions of representative clothing value for 2010

 

+

Good option for saving and formulated in such a way as to 'expose' those who were quick to allocate money for clothing in the last days. Now they will have to economize in other cost items.

21

Additional subsidy for Ministry of Labour and Social Activities budget for activities under social assistance from the state budget.

-142

-

Certainly contrary to the purposes of the provisions in this section, which is supposed to help limit the budget deficit and increasing the fiscal reserve. Huge resource that will neutralize the effect of many positive measures.

 

Public financial discipline recovery measures

 

 

 

22

Schedule for the payment in full by the end of the first half of 2010 from the state and state enterprises of the amounts due on completed contracts according to agreed conditions, legislation and EU directives.

 

+

Fully support. Treaties must be respected.

23

Recovery in the legal deadline of VAT and excise duties to the companies.

 

+

We support entirely.

24

Accelerated repayment of amounts due to beneficiaries of EU funds, accelerate existing and launching new schemes in operational programs and national plans to maximize absorption of EU funds. Increase in advance payments to 40%.

 

+

Positive measure.

25

Create a public records due to equipment procurement, VAT, excise and European projects.

 

+

We will always support the publicity for spending public funds.

26

Establishing obligations for companies by signing an annex to their contract with the contracting authority, after payment by the state to immediately pay the delayed salaries and benefits, as required by the Labour Code and Collective Agreement and the obligations to subcontractors and suppliers.

 

+/-

Controversial measure - what companies do with their money is their job. There is no reason to believe that companies will not pay the delayed salaries of its employees, unless they are sure their employees will not seek justice from them. In this context, the effective court operation is far more important measure that will affect the whole economy.

27

Immediate legislative changes to ensure that the period of repayment by the state to companies, will be declared a "holiday period", ie without penalty interest on outstanding taxes and benefits and have access to EU projects and procurement.

 

+

It is appropriate state and private entities to possess the same rights regarding their obligations. Temporary good measure, but it is more important the country renders its obligations on time to avoid such cases arise.

28

To simplify procedures and to shorten the bankruptcy proceedings.

 

+

We fully support.

29

Ministry of Finance to publish:

 - each month the details for implementing revenue and expenditure budget and analysis to them, including the balance of the VAT.

 - each month, details of movements in foreign debt and economic analysis to it.

 - detailed monthly data from the fiscal reserve and its breakdown by currency denomination cash and current yield.

 - Ministry of Finance to collect and publish quarterly financial performance information for all companies with prevailing state participation - balance sheet and profit and loss to them.

 

+

We fully support.

30

To increase by 10 posts PFIA composition. Starting as soon as possible inspections in Bulgargaz, NDK, NEC and BDZ.

-0.250

+/-

The latest available annual report (2008) shows that there are 12 PFIA vacant posts. If an increase in the personnel is still needed, it must be cut 10 pieces in another administration.

 

Real sector extra financial resource provision measures

 

 

 

31

Increasing the debt capital of Bulgarian Development Bank (BDB) and not less than 60% of the borrowed resources are directed to SMEs. To analyze the possibility of the branch network of Bulgarian Posts Lmtd. to be used by BDB.

 

-

Totally against - it is naive to think that a few million will assist SMEs to cope with the crisis.

Totally unacceptable to not specify the amount, which will increase capital.

Bulgarian Post should be privatized and not finding work to the company.

32

Validation and intensification of the trading system of carbon dioxide allowances from companies. Regulation of accounting and tax treatment of transactions with European emission allowance trading.

 

+/-

It will take time, it is unclear what the outcome will be.

33

Adoption of amendments to the Regulations of the Law on Investment Promotion, by which to: significantly reduce the current threshold for a certificate for Class A and Class B high-tech activities as defined by Eurostat and investments in municipalities with unemployment equal or higher than the average in the country, introduction of the lowest threshold for investment in research, education, healthcare, information technology and artistic creativity in culture, regulation of specific conditions for the certification and promoting a package of measures priority investment projects in all sectors of the economy, as required by Regulation 800 / 2008 of the European Commission on state aid.

 

-

Absolutely broken and ineffective measure. In practice, the measure provides for investors in these activities:

 - the administration to serve them faster

 - Minister of Economy to sell property without auction

 - budget to do the infrastructure and to pay for employee training certificates to investors Class A and B.

First, some measures lead to spending more money and secondly it is absolutely unacceptable to any other companies. Reference: more than 95% of companies in Bulgaria are small and medium-sized and will not benefit from the measures.

34

Through amendments to the local taxes in the context of the 2011 budget to strengthen the financial autonomy of municipalities and to introduce the sole basis for determining the fee for municipal waste amount of waste generated.

 

+

We fully support. It should have happened long time ago.

35

Visa facilitation for citizens of Russia and Ukraine under the most liberal European practices.

 

+

OK.

 

Households income supporting measures

 

 

 

36

Establishing a mechanism for increasing the minimum salary by July 1, 2010, which includes both economic and social parameters.

-10

-

Increasing the minimum salary is pro crisis measure because it is directly related to the decrease in employment and expansion of the informal sector. This will increase costs for employers, will affect mostly low-skilled workers who are most vulnerable in time of increasing unemployment.

37

Remove limit on unemployment benefits from July 1, 2010 and determining the level of compensation as 60% of social security income before loss of work. Introducing the obligation of the unemployed to register within seven days in the Labour Bureau.

-45

-

Removing the limit on benefits will reduce the incentives for job search. The measure will lead to huge budget costs to be paid by those who still have jobs.

38

Optimizing the allocation between the operators of food vouchers by abolishing the quota principle. In forty-five days to analyze the effects of increasing the number, size and extension of food vouchers as a mechanism to support the real incomes of employees. In the analysis to show the effect of introducing a system whereby each newly workplace by employers be given a voucher.

 

-

Vouchers are mostly kind of tax preference, which currently benefit larger companies.

39

To endeavor to temporarily restrict the growth of state regulated prices of goods and services of public interest.

 

-

This measure will have minimal and temporary effect because consumers will still have to pay the price, either in another form.

40

Establishing a mechanism to ensure funding of insured persons in pension funds for supplementary pension invested in deposits in Bulgarian commercial banks in consultation with the National Bank and the FSC.

 

+/-

The effect of this measure is determined by the exact mechanism. It is essential not to approach the matter with government guarantee intentions.

41

Approve additional appropriations in the budget of the MLSP to finance public dining disclosed pursuant to Article 27 Section 3 of the Social support act for the period from 01.04. to 30.04.2010.

-0.450

-

Here the budget effect is more important. Costs should be decreased rather than increased.

 

Labour market

 

 

 

42

A complex of measures implemented by the end of 2010, financed by the operating program "Development of Human Resources" and the Republican budget, to maintain employment in enterprises with difficulties in production and marketing by:

- Introduction of flexible working time;

- Special leave for economic reasons;

- Ensuring the rights of workers released after application of the measures of flexibility and adaptability of working time to obtain benefits due under the Labour Code, based on gross salary under an employment contract to the month preceding the implementation of measures of flexibility.

-14

-

Obviously, flexible working hours implies additional payments by the state, which contradicts the meaning of anti-crisis package. Some of the measures indicate a need to liberalize the labour market, to enable employers to have the freedom to respond to the economic situation immediately.

43

Providing additional funds for supported employment to the National Plan for Employment.

-10

-

Extremely negative. Increased costs from the budget for employment, which usually last for the duration of the program and does not affect long-term employment in the economy is just waste of money.

44

Increasing labour mobility through the creation from state and social partners of monitoring and distribution system for skilled workers at sectoral or territorial level.

 

-

The mobility of the workforce is contingent on market flexibility and favorable business environment, rather than administrative supervision and artificial distribution.

45

In cases where an employer temporarily assigns the employee to carry out other work in the same or another enterprise, temporarily, until the end of 2011 to increase the allowed period of 45 days to 90 days within a calendar year. For the period after the 45th day consent of the worker is necessary.

 

-

Such a regulation will have no significant effect on the budget or to reduce unemployment.

46

Restrict access to the labor market to workers from third countries, except for highly skilled.

 

-

Restricting whoever's access to the labour market will cause negative effect to competition and increased workers productivity.

The measure is also negative to companies wishing to increase their efficiency. Such a measure of protectionism is incompatible with a market economy and can only lead to negative effects.

47

Create mechanisms to first employment of young graduates through operational program “Human Resources Development”.

 

-/+

This is not state's work in principle, nor is clear how they will find work for young people, if there is just no need for people. At least it will not spend budget money, but will use the European programs.

48

Introduction of legal regulation, ensuring fair competition and preventing market distortion through  monopolistic pressure on suppliers of goods and services, as exemplified by the member states.

 

-

Currently Law of Protection of Competition and the Commission for Protection of Competition are operating. It is not necessary to establish further regulations, especially in times of crisis. We just need effective law enforcement.

49

Comprehensive review of businesses in danger of closing due to non-compliance with EU environmental requirements and developing measures to limit public support.

 

-

First, it would burden the budget. Second, government support is bad for business because it helps inefficient enterprises and penalizes others in the sector or the economy, including through a filthier environment.

50

Collection of reporting information by the National Revenue Agency about unpaid wages and provide aggregate quarterly data on economic activities on regional and national level.

 

+/-

Here again the court should have the leading role, not the NRA.

51

Using the  Minister of Labour and Social Affairs's right to extend the operation of branch collective agreements based on prior consensus within sectoral councils for tripartite cooperation. At the same time to develop criteria for the representativeness of sectoral employers' organizations.

 

-

One of the most harmful measures throughout the plan. There is not an argument, which empowers the Minister to impose conditions on private companies with respect to wages, hours, etc.

Quasi-state monopoly sector organizations should be completely removed and not receive more power.

Regarding the criteria of representativeness - a necessary measure that should be followed immediately by a census regarding not only employers, but trade unions as well.

 

Social insurance systems

 

 

 

52

Until the end of 2011 temporary suspension of the contributions reductions.

 

-

Extremely negative. Reducing the security burden is one of the most effective anti-crisis measure.

53

Formation of common principles for further development of pension reform to achieve financial stability and system autonomy by linking social security benefits with the Social Security contributions, aiming at 75% replacement income in the longer term. The prepared pension reform conception to be submitted for consideration in the National Council for tripartite cooperation until 31/05/2010.

 

+

It is extremely imperative to reform the pension system. Government Awareness of this fact is by itself positive but the reform must be radical.

54

Gradual strengthening of the principle that the established level of minimum salary guarantees a minimum pension for retirement, complying to the requirements thereof.

 

-

This measure should not be commented at all because the minimum wage should be abolished, and the pension system must be reformed.

55

Increasing amounts paid under Guarantee Claims Act employees upon employer insolvency, 2010 from 720 leva to 1000 leva.

-5

-

This measure does not lead to lower budget costs.

56

Repudiating the health insurance contribution increase . Introduction of electronic patient health record until the end of 2010 Take drastic measures to control and enhance the collection of funds in the budget of National Health Insurance Fund.

 

+

The increase in health contributions without reforming the system is unfounded. The introduction of the electronic record should happen quickly and efficiently. It is high time to broke the NHIF's monopoly, not to think of ways to patch the budget.

57

Persons who are not insured on other grounds, pay social security contributions on income from capital and property.

 

+

As well as labour income, this income should be taxed in order to assess what people need state support.

58

Introduction of tripartite management of the NHIF. Jointly defining concrete steps and stages of health reform to ensure access to quality health care. health reform concept to be proposed for discussion in the NCTC until 31/05/2010.

 

+

Health care reform must start, but it should be the responsibility of the government chosen by the Bulgarian people. As shown in many other reform efforts, often tripartite principle acts as a brake on the radical measures necessary. For two decades only cosmetic changes and filling the hole of inefficiency in health insurance have been made.

59

Postponement of the supplements increase to the pensions of retirees older than 75 years of age and the surviving spouse with a change in the Law on State Budget for 2010 and the Social Security Code.

142

+

Given the expected significant cash effect on the budget, such a measure is justified, especially given that the existing pensions and allowances shall not be reduced.

60

Dismisal of State Social Security's commitment to pay the first 3 days of temporary disability in order to avoid abuses of the insurance system

 

+

Will reduce the drain of the National Insurance Institute.