If we look forward, many changes are about to happen. These changes may set out in different directions. The chosen course will depend on the choices, which persons and companies (living and operating in Bulgaria) have made in the past, and which they continue to make now.
The more significant changes
Without doubt, far more significant for the economy and for the future of both the citizens and the country have been the choices made in 1997 to restrict the monetary policy of the government, to stabilize the rate of exchange, and not to re-finance banks and the government through the central bank. These decisions have led to the longest period of economic growth in the history of Bulgaria. Without it, nothing of what today characterizes the well being of households, their incomes and the value of their assets (including land and houses/apartments), as well as the value of the assets of companies, would have been realized.
The second series of important economic events is the realized since 1997, by several governments, considerable decrease of taxes. Moreover, even despite acknowledging the decrease of the corporate tax to just 10% as of this year, the process is far from completed.
The general idea of the last tax reform is, by keeping a relatively high level of taxation on the income of private persons (including through taxation of labor of those who work today), to stimulate investments by companies, respectively to create new jobs and to increase the revenues coming into the budget.
Besides, the amount of government expenditures – both as an absolute value, and as a percentage of GDP – are expected to either increase or to remain at a relatively high level. This level, as has been commented many times, historically is by about 6% higher in Bulgaria than in the faster growing economies of New Europe. The lack of changes in this line of policy is a mistake, which hinders the long-term development and is extremely shortsighted, but the government does not have any intention to make any changes.
The changes that have already occurred and that will influence Bulgaria’s conduct in the EU
The days before New Year’s Eve were characterized by a more visible and vaster, in comparison with previous years, increase in consumption. This was incorrectly interpreted as fear of the induction into the European Union.
The reason for such conduct is the circumstance that income levels in Bulgaria have been growing relatively steadily by about 5-6% a year in the last 8 or 9 years. Besides, they have not been artificially inflated to a significant degree, as was the case in Hungary in 2003, for example; the level of growth is for the most part in line with the productivity of the labor force. The Hungarian political crisis of last year, including its interpretation by Bulgarian observers and government economists, has prevented such a scenario from developing in Bulgaria, for now. The chief inflationary factor in Bulgaria is the financing of the public sector and the governmental fixing of some prices.
The increase in consumption in November and December is an expression of the confidence of Bulgarians in their own future. The contrasting interpretation, however, seems to be prevailing. From an economic point of view, it is foolish, but this circumstance does not make it less important. It is rather the opposite. In 2007, precisely this mood will uphold the already strong desire to steal from the one next to you with the help of government and will uphold the paternalistic view of the government of itself and of the role of the state.
For the establishment (ruling class), the entry into the European Union is a transition from socialism to a ‘EU’. And the EU is a substitute both for the CMEA (‘Council for Mutual Economic Assistance’, for those who are not familiar with the abbreviation) and for the Soviet Union. Such a paradigm of theirs is supported by the way in which the EU itself operates.
In 2006, the government made many decisions, which are comparable to the former dream of Todor Zhivkov to make Bulgaria part of the Soviet Union, and in this way to secure his own government. Those I have discussed on previous occasions and there is no point in dwelling on already known topics. What is important to state here is that those decisions will influence the conduct of the country as a member of the EU and unfortunately the Russian ambassador to Brussels will turn out to be right – Bulgaria will be Russia’s Trojan horse in the EU.
What is about to happen
Bulgaria will be the most bureaucratic country in Europe.
Bulgarian citizens for now do not realize that their ‘backwardness’, meaning in terms of levels of GDP per capita in comparison to the average in the EU is at present their greatest advantage. This backwardness (or underdevelopment) sustains relatively low prices, low costs of labor and of operating a business, less the costs of dealing with the government. This increases and maintains Bulgaria’s attractiveness to foreign companies and citizens and serves well for the development of the level of well being here.
This year will be one of extremely unpleasant experiences. The membership in the EU will demonstrate that the country is relatively uncivilized, its citizens – relatively backward, its businesses – often illegal, and the state – provincial.