Economic Policy Review ISSN 1313 - 0544

What Can and Cannot the Caretaker Government Do

Author: IME / 11.04.2013
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The caretaker government was appointed and on the very next day calls for spending were (over)heard – to borrow money and to increase incomes. It is even hard to track who is making such arguments – the Bulgarian EU Commissioner, for instance, occupied the media with this proposition, and then renounced the statements. It’s a fact that such populist arguments always appear in the public debate when there’s a vacuum for ideas. In a case of a new government, a new budget law or a revision of the budget being voted, an anti-crisis program being debated or a caretaker government appointed, there is always someone to start talking about debt and spending. There are people who believe in the mantra that spending money we do not have will make us wealthier. There are also outright populists who expressed such opinions in the last couple of days.

The interim caretaker government cannot create or amend laws; it can only abide the already passed laws. This means that it cannot take new (not planned and not authorized) loans, neither can it spend more than what is already planned in the budget. Discussing new loans and expenses, – which is legally impossible before elections - is (simply) impertinence. Moreover, the babble is not coming from politicians, who often talk in populist nuances to win more ballots but from public figures who seek media appearance and coverage trying to flirt with the people. Pensions, maternity benefits and child support benefits cannot be increased more than already planned – all these expenses are laid down in laws and are set in stone until the formation of new parliament.

The caretaker government will not take new loans or introduce new expenses – the budget balance cannot be worsened without the sanction of a functioning parliament. What could be done is to rearrange the accounts in the limits of what was voted – although it is on the margins of the law, the practice in Bulgaria has shown that the finance minister is capable of transferring money from one place to another. Simply put, the interim government can optimize some outlays and focus more efforts on particular programs - on employment programs for instance. Pensions will be increased as planned from April 1st, and more than that cannot be expected – even some supplements to particular pensions or increase of the minimum pension would increase the transfer from the State budget to the National Social Security Institute, which would contradict the budget law. The only thing that could be done is to save some money from administration and to allocate them from dysfunctional to successful programs. This would be extremely hard, given the fact that nobody in the administration engages actively in reporting or evaluating particular programs.

Again at the forefront appears the topic on the minimum wage, which was last increased on January 1st this year. In the case with the minimum wage, all decisions are within the prerogatives of the interim government, while parliamentary vote is not necessary. Still, we need to refresh your memory that the major problem of the country is employment – an increase of the minimum wage, in effect, makes the creation of new jobs more difficult[1], especially for low-skilled labour in the country. It is absolutely ill-advised for the state to attempt carrying out income policies by transferring new burdenс to business and ruin the modest dynamic of employment in the last couple of months. When a policy is implemented, it should reflect the interests of the society in general, which also includes those outside the labour market – actually, the most serious socio-economic issues are found precisely there.

The interim government cannot make wonders out of bravery regarding the expenses, but it should effectively get to work on the revenue side. The data on the budget implementation for January indicates certain weaknesses – we spend a little bit more, and collect a bit less as compared to last year. The budget is approved with higher revenues; therefore, the tax administration should be tightly monitored in the upcoming two months. It is quite possible, given the political crisis that took place, to observe “distraction” among tax administration civil servants, as well as among taxpayers, and this phenomenon should be disrupted. The highest priority of the caretaker government is to ensure for fair elections, but next to that as priority is to monitor the work of the revenue agencies and budget implementation.

Within this general fiscal frame, each administration should pay a closer look to the burden they impose upon the business in the country. Any regulations or administrative rules (no laws) that uselessly encumber the business or, strictly speaking, impede competition, could be changed in these two months. Such examples can definitely be found in the ministries of labour, economy, transport and agriculture. If public councils are to be added to each individual ministry, they should address precisely whether the regulations are proper or they are more likely to hinder entrepreneurs and economic development. It seems that the greatest example could be found in the agriculture. 

The administration under the last minister committed a lot of efforts to impose burden on different agricultural sub-sectors, introduced couple of purely lobbyist regulations that favour some producers at the expense of others and managed to transform the Food Safety Agency from a neutral institution with entirely control functions into an institution that exerts pressure on the market and into yet another state structure with serious corruption issues.

Without much effort, the new minister of agriculture can literally for a month reverse many of the negative results from the imposed rules of the previous administration by equalizing the conditions for the market participants in the country and by placing the Bulgarian and foreign goods on equal stances (many pointless requirements from the last year raised the prices of Bulgarian production). He can allow for the small and micro-business to take a breath and develop without the constant and unjustified harassment from the Food Safety Agency officials[2].

Transparency should also be a priority for the caretaker government – here we talk entirely about the work of the administration, and not about laws. For two months some serious breakthroughs can be done that until recently seemed unthinkable. Here are a few examples – the Ministry of Finance can easily publish monthly detailed information on the implementation of the consolidated program by functions, and also the budget reports of all municipalities in the country. For the local budgets issue, we know that municipalities send the relevant information to the Ministry of Finance, so what is left is to upload 264 pages on the ministry’s webpage, which could be done in one week. Every ministry is collecting and using some relevant information in its everyday operations and there is no excuse for this large amount of data not to be uploaded and freely accessible on the internet[3].

 To sum up, the caretaker government should preserve fiscal stability, optimise some expenses, monitor the effective revenue collection and review all administrative regulations which impede entrepreneurial activities as well as push for more transparency. The last note is extremely important, it is supported by the public and is absolutely achievable in 1-2 months – the administration should simply publish information it already has and operates with. More public information does not favour the ones in power, because it makes their work easier to monitor. This exact reason explains why the interim ministers are in a position to do it – they are temporally appointees, and the data serves better to assess their predecessors.

 


[1] Let’s not forget the famous essay by Frederick Bastiat “What Is Seen and What Is Not Seen”. In it Bastiat says: “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen”.

[2] For this purpose, the following regulations should be reviewed: the regulation on dairy products (for more details check here and here); regulation №32 on poultry products (see here); regulation on the selling of wood; the regulation on direct delivery, which in its current version, practically, makes it impossible for small agriculture producers to sell their products directly. The list is not exhausted but is a good start.

[3] Here is an example. When in the last few months Bulgarians working abroad were discussed, everybody was talking plain theory with no actual data. As it turns out, such information is available at the Ministry of Labour – every single Bulgarian, working legally around the world, is in this statistics. The data should be accessible in detail and by year. Knowledge of such kind of databases is greater in the administration and not in the civil society. That is why the provisional ministers can change a lot of things regarding transparency.