By the end of September, the budget deficit had reached 2.8 billion Leva (EUR 1.43 billion), and has been growing at an accelerated rate compared to the previous months. This puts increasing budget revenue for next year firmly on the agenda. The big question which brought the trade unions and the employers to a head-on collision is – should taxes be raised? At one extreme is the opinion that taxes should not be changed, only expenditures optimized, and at the other – that there exists glaring social inequality in the country and it is time to impose a tax on wealth and profits so as to help underfinanced state sectors. 

“38-39% of the budget is formed from taxes,” said economist Georgi Ganev from the Centre for Liberal Strategies in Sofia and recommended budgetary belt-tightening during a discussion within the frameworks of the 7th banking and financial forum “The future of money” organized by Manager magazine. 

“Government spending has to be reduced because the administration is being overgrown by an ecosystem which puts up stiff resistance every time anyone attempts to optimize things. For example, I am amazed how our social system helps everyone in equal measure. So, incredibly rich people are entitled to benefits in the form of social pensions. The deficit in state insurance is due to ill-judged state aid given out to no purpose. This is not helpful in fighting inequality or poverty. There should also be a rational approach to the number of people employed in the public sector.”

Another expert working with financial instruments and monitoring the dynamics of inflation upholds the opposite view: “The higher spending should be compensated for in the budget - these expenses are being made because of the aging of the population but the defence spending is higher too,” says Kristofor Pavlov, chief economist at a leading bank:

“The idea that low taxes can solve all our problems is erroneous. It is obvious that Bulgaria has an inequality problem, employees’ incomes are mostly low, even the right and responsibility of the government to form a minimum wage is being contested. It has practically no role in these market processes. As regards taxes – the wealth taxes can be raised because it is no secret there are some really wealthy people in the country. Profit taxes for companies and “dividend” tax in Bulgaria is the lowest in the entire EU.”

The caretaker cabinet has a short-term time horizon in which it can act, while the important decisions are in the hands of the political parties which will be represented in the next National Assembly – the experts from the Economic and Social Council of the Republic of Bulgaria on their part say. Being a government body, it is the Council’s job to analyze the processes and, taking the public interest into account, to find a “recipe” it can offer to the administration of the country. 

“The experts from the Council are currently working actively on an analysis of the tax-benefit system,” says Zornitsa Roussinova, President of the Economic and Social Council. “That is what we have been assigned by the National Assembly, and for the period covering the whole year – a full and detailed analysis of the pension system, and by the end of December there will be specific recommendations on how the pension system can be improved or refined.” In the past few months, the Council has drafted two short-term analyses connected with educational inequality in Bulgaria, and with the effects of AI on the labour market in this country, Zornitsa Roussinova says:

“The analysis (of the system of education) we prepared on the basis of the combined opinion of the trade unions, the employers and civic organizations, looks into the inequalities in the educational system and their effect on economic development and incomes, it demonstrates the imbalance of the system as such. There are still 12,000 children who do not go to kindergarten – and not just in small towns and villages but in cities as well – i.e. access to education should be guaranteed but also supported by the state. Guidance for school-goers in choosing a profession and the respective education is crucial. Bulgaria is well below the average for young people attending universities. We are also analyzing the connection between education and the labour market, and raising the level of education. This also concerns AI and digital skills. These are the social issues which the Council is bringing to the attention of the public.”