IME

State Expenditures in 1998-2006

Автор: Svetla Kostadinova, Dimitar Chobanov / 29.05.2007

This week the expenditures by functions of the budget for the period 1998-2006 have been published. It is interesting to look at them because they clearly show on what exactly the money from taxes is spent.

The reduction of total expenditures in relation to the GDP creates a significant impression, as in 2006 they reach their lowest rate for the entire period (37.2%). Keeping the incomes on relatively fixed levels leads to an increase in the budget surplus. Instead the released resources could be used for reducing the tax burden.

The expenditures for social security, social assistance, and welfare represent the highest share, as a percentage, of GDP. This is normal as we take into consideration the lack of resources in the insurance funds, the rate of unemployment, as well as the occasionally generous social payments. Despite that, a decrease in these expenditures is observed for the last 3 years, which is a good trend if preserved. However, examining the whole period from 1998 to 2006 we notice a slight increase in these expenditures.

On the second place, as a share of the budget, are the expenditures for defense and security, as this trend is very astonishing for a small country like Bulgaria. In this area in the last years a smooth decrease is also observed, but the decrease is very insignificant compared to what is possible in reality. Here are included the expenditures for the police and judicial system, which seem rather ineffective taking into consideration the petty protection of the property rights in the country.

Another interesting detail is the expenditures for economic activities and services, third in size, in the budget as a percentage of GDP. Here are included the different programs, subsidies for certain areas such as the agriculture, energy sector, transport, and other industries, as well as the expenditures for infrastructure. They represent 4.5% of GDP in 2006 and are at a relatively fixed rate. Practically this means that the country still tangibly participates in spheres of the economy which are not typical of it, instead of giving the chance to the private sector to undertake the costs, investments, and the management of these activities. In this respect that creates grounds for corruption, ineffective expenditures and incapability to reduce the tax burden due to the indispensable financing of these expenditures.

Increase in the expenditures for the period 2004-2006 is observed in the area of general state services, which means that the present government actually spends more money on administration and different public utilities. On the one hand, this is a result of the increase in the number of state administration, and, on the other hand, it is a result of the income policy which uses as an instrument the salaries in the budget sector in order to influence the salaries in the private sector.

Instead of a conclusion

The most general conclusions would be the following:

  • There is a reduction of the expenditures in certain areas of the economy, but that has not stimulated the government to significantly reduce the highest taxes - taxes over labor. That is why the social expenditures in the budget are also the highest and do not significantly decrease during the years.
  • It is apparent that there are solid resources for reducing the tax burden through an increase in the effectiveness of the expenditures and a decrease in the budget surplus.
  • The high government spending is not tantamount to a just society. The substantial expenditures mean high taxes, highly distributive role of the government, and restriction of the individual freedom of citizens. In many of the countries with significant government spending the low-productive majority lives on the back of the highly-productive minority, which finances the government expenditures.