Economic Policy Review ISSN 1313 - 0544

The myths about budget 2009 … and the market

Author: Svetla Kostadinova / 11.12.2008
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During the discussions of the proposed budget for 2009 in the Parliament were stated some absolutely erroneous ideas, which however appear to have been gaining public attention. The truth is that if they were accurate now we would have been poorer than some African nations. Here are the details with explanations why the claims are absurd.  

The market has failed and for that reason the State must intervene, i.e. spend funds (a politician from the ruling coalition).

In order to explain the absurdity of the claim, it is a good idea to see from where it is coming from. The claim was made by a party representative from the ruling coalition, which with its policies during the last three years "without really intending it" is conducting pro-market policies and surprisingly (!!!) in Bulgaria the incomes have been growing with over 15% on the average per year, the unemployment is down to critical levels, while the foreign investments registered a significant increase. To call the white black is not logical.

 

The low taxes are the fundamental reason for the low incomes in Bulgaria (trade union).  

The trade unions apparently do not want to comprehend, that the low taxes mean more money to the people, i.e. if you work you would keep a larger portion of what you earned for yourself. It is a separate issue that in Bulgaria the social security payments are so high that for some of the people it does not make any sense to pay them or at least not to pay them on their real income, or if they want to avoid possible problems with the state they simply do not work very hard.

It is true that during the discussions the trade unions requested a greater reduction of the social security payments by 4%, not with the proposed 2%, but that was accompanied with demands for an increase in the allowance for food (negligent expected positive effect and it applies only for selected employees and employers) and recognition of the social costs (the lower payments would have a more significant effect) which ideas are diluting the logical request for reduction of the social security payments.  

 

Privatization must be re-examined (politician).                               

We could provide a number of examples from Bulgaria and even more from around the World about the positive effects of privatization - better quality services, real choice for the consumers, lower prices. Actually, the main lesson from the privatization in Bulgaria is that in the cases of failure it is not a failure of the market but a failure of the state to create the legal base for the markets.

 

Reduction of the social security payments must be greater for the employees and not for the employers (trade union)

It is not clear how many more times it has to be explained in a comprehensive trade union language, that regardless of the ratio at the end every thing is at the expense of the employee. To argue about what portion of the social security is covered by the employee and what by the employer is the same as to argue whether or not the VAT is being paid by the companies or is included at the end in the price of the goods and is paid by the consumer.

 

There is no way not to increase the money for healthcare and other problematic areas, because the systems otherwise simply would not work (minister)

This is the most convenient explanation for doing nothing year after year. It is necessary only to see how the money for healthcare is increased and how that does not mean better hospitals and higher salaries for the doctors. The truth is that the money could be and would be more if there is a market reform, and would not be distributed by the state employees but would be paid directly by the people. The possibility to select your personal doctor and to pay for his services, to select the health fund and to negotiate with it and you alone to select how much should be your pension when the time for retirement comes, that is a real reform. That does not mean withdrawal of the state - the state would guarantee the safety net for the vulnerable groups, the government would insure the transition period towards more responsibility and choice for the people and last but not least it would guarantee that everybody is playing according to the rules. The impression from the discussions is that with the exception of the journalists and a few MP's the remaining participants (representatives of the administration, the trade unions, the state administration, the judiciary) were there just to ask for more money... from our money. 

Everybody insisted that they need more money in order to manage the extremely ineffective public system; others explained that the state again is becoming an entrepreneur, which has the experience, the knowledge and the stimuli to assist the problematic private sector.

Then what could we expect as a decision?! - The expenditures in budget 2009 are exactly as they should be before elections, the government is allowed additional significant spending, but the clear objectives are somehow missing. Except may be the objective of at least 7% of GDP for investments. The sad experience with the European funds makes us feel creepy when we think how the money would be invested.

The Institute for Market Economics believes in the strength of the market, now more than ever and that is why we believe that in the Budget 2009 there should be:

  • Reduction of the government spending instead of increase with the objective to replace the reduced foreign investments;
  • Giving a real choice to the people to provision for their health, education and pensions - they know and could do better everything which the administration is failing to provide;
  • The state should not engage in uncharacteristic activities - privatization and concessions, but following civilized procedures where the rule are clear, specific, for everyone and there is responsibility for not delivering on your promises;
  • And finally providing an effective guarantee for equal conditions for everyone, who live, work, invest and take the risk of being an entrepreneur. That would mean guarantee of the contracts and the individual rights. 

The doubts and reproaches under which is currently being put the market apply to the same degree, even stronger for the government. Not say every Bulgarian government ... unfortunately.

We must make it also clear that our proposals, which we have been defending for years do not mean lack of government - the markets could resolve most of the problems of a given society, but the state has a central role - to enforce effective and fair rules for all. One thing is certain - the free markets bring freedom and prosperity.