14.11.2013

STATEMENT OF MINISTER OF FINANCE PETAR CHOBANOV DURING THE DISCUSSION AT FIRST READING OF THE DRAFT 2014 STATE BUDGET LAW IN THE NATIONAL ASSEMBLY

 

Mister President of the National Assembly,

Ladies and Gentlemen Members of Parliament,

Colleagues,

 

Pursuant to Article 86(1) of the Law on Public Finances I present to you for discussion the draft of the 2014 State Budget of the Republic of Bulgaria Law.

The overall philosophy of the 2014 Budget is focused on pursuing concrete results, namely restart of the economy and acceleration of growth, because only in a working economy we can speak about sustainability and stability of public finances and fiscal discipline. If we do not restart the economy, the fiscal discipline cannot be sustainable in the medium term. The achievement of stable and predictable investment environment and the creation of conditions to improve the business environment will be a clear and positive signal to investors and for recovering people\'s confidence in the market and entrepreneurship, as well as for increasing the competitiveness of Bulgarian enterprises.

The period of the GERB Government is characterized by a number of fiscal problems in respect of the budget planning and implementation, lack of any connection between fiscal target and economic development, and administrative pressure that destroyed the business environment. We cannot hold that we have had fiscal stability in the past 4 years, implementing fiscal policy that hinders growth, is not paying on time the businesses, delays particularly large amounts of VAT refunds, is not providing for enough funds in the planning phase to pay even the social assistance. The depletion of the fiscal reserve by BGN 4 billion and the increase of debt by a similar amount, while exhausting all current and strategic buffers is not fiscal discipline. Such problems could hardly be corrected by one budget only, but with the draft 2014 Budget we are making decisive steps in the right direction.

The 2014 Budget has been drafted with assumptions for a stable macroeconomic environment in the medium term that will be achieved by implementing the policies foreseen.

GDP growth in 2014 is expected to reach 1.8% in real terms, the forecast being for accelerated exports growth given the positive perspectives for the development of the European economy, and for recovery of domestic demand as a result of an improved economic environment.

The 2014 Budget clearly and categorically provides for policies supporting growth that envisage a more balanced growth model. Policies are envisaged that support the growth potential and also give grounds to expect growth in domestic demand. The fiscal consolidation for the period 2014-2016 is fully consistent with the cyclic development of the economy, the main part of the deficit being formed of expenditure focused on investments and improving the living conditions and the life of people. Resources are being provided specifically for reducing regional imbalances and creating employment and growth in the regions.

The realistic forecast for the key macroeconomic indicators is the basis on which the fiscal policy for the next year is built on. The excessively optimistic forecasts for the economic development in the past years are one of the reasons for not achieving the budget objectives of the tax policy. The tax revenue forecast for 2013, that influence the dynamics of macro-indicators, was too optimistic and increased the fiscal risks for the budget implementation.

The formulation of the budget balance target without taking account of the macroeconomic forecast predetermined the negative influence of the budget on the economic cycle.

The unrealistically set budget balance target in the past years, expressed in restricting public expenditure in order to achieve quickly a balanced budget position, further limited the possibilities for sustainable economic growth. The restrictive fiscal policy implemented until now had a negative impact on employment, consumption and investments.

For 2014 the planned budget position of the consolidated fiscal programme is a deficit of 1.8% of GDP. The fiscal target set is to be achieved with revenues amounting to BGN 30,886 million or 37.9% of GDP, the nominal growth compared to 2013 being BGN 501.2 million.

The expenditures in 2014 are foreseen to amount to BGN 32,358.3 million or 39.7% of GDP (the limit being 40% of GDP).

To contain the budget deficit within the limits provided for in the fiscal rules of the Law on Public Finances and at the same time to pursue a maximum positive effect on economic activity, a number of measures have been take to restructure ineffective expenditure and actions to optimise and/or close structures with subsiding and/or died out functions. The aim is to release funds that should be more effectively targeted at policies the result of which will be visible and easy to measure.

Among the priorities of the debt policy in 2014 too will be to increase debt in a controlled way considering the need to ensure a low risk structure and profile of the government debt.

In 2014 the debt is foreseen to reach BGN 18.0 billion, which is an increase by BGN 3.4 billion compared to the estimates as of the end of 2013. The debt level will substantially decrease already at the beginning of 2015 given the pending payment of around BGN 1.7 billion on the issued in 2002 USD denominated Global Bond. 

The minimum level of the fiscal reserve as of 31 December 2014 is maintained at BGN 4.5 billion.

Abiding by the national priorities of the Government Programme, targeted measures and mechanisms to influence several key policies are foreseen in the medium terms.

The tax and social security policy for the period 2014-2016 will be focused on supporting economic growth and enhancing fiscal sustainability in the long run while preserving low rates of direct taxes and taking vigorous measures by the revenue administrations to increase collection and restrict tax fraud.

The tax policy priorities for the period 2014-2016 are, as follows:

Ø  Increase of budget revenues and fight against contraband;

Ø  Lowering the administrative burden and costs for businesses and citizens;

Ø  Fostering investment activity and employment.

I will outline some of the tax policy measures along these lines: improvement of the single account for payment of taxes and social security contributions; introduction of a special \"VAT cash accounting\" regime; improvement of the \"remission of corporate tax\" preference for enterprises with production activities in municipalities with high level of unemployment; introduction of fiscal control over the movement of high-risk goods on the territory of the Republic of Bulgaria, etc.

The Government\'s expenditure policy is aimed at changing the allocation of public resources and using the state budget as an effective instrument for bringing the country back on the track of sustainable growth, promoting investment and employment and ensuring the social protection needed for the vulnerable strata of society.

The policy of adding every year limited resources to all institutions that are not result-oriented is terminated. Optimisation of the expenses of ministries and institutions allows the allocation of financial resources for implementation of the public investment programme. In order to retain the macroeconomic stability and to fulfil the priorities of its governance programme with the limited options for expenditure growth in the next years, the Government will restructure and reallocate resources to specific sectoral policies focused on the various economic and social spheres. The anticipated positive effect is linked to the change in the macroeconomic model of containing economic growth through fiscal policy that has been followed lately, and the 2014 Budget implements a policy of galvanizing in the medium term.

Ladies and gentlemen,

I will bring to your attention three key priorities of the 2014 Budget without underestimating the rest of them that will be defended in the course of the deliberations.

Education and life-long learning policies are a key priority for 2014. The reform of vocational training appears to be main focus of stable and sustainable economic growth. The main focus here is not only on the pupils\' acquisition of specific skills and capacities but on the development of pedagogical staff and introduction of e-learning which will concurrently improve the quality, access and attractiveness of vocational training. A milestone is the integration of the learning process in the professional and practical experience by linking vocational schools and business.

Another key emphasis in education is improving the quality of education by ensuring access to good teachers. In order to cover the shortage of prepared specialists in the field of education, a pedagogical staff development programme is to be launched in 2014. Funds are also provided for the financing of measures aimed at attracting and retaining pedagogical staff by laying emphasis on urging young teachers to continue their employment at small schools in remote regions.

The planned new mechanism of additional financing of BGN 100 million in the system of education will improve the qualification of the labour force in the long run and will have a positive influence on labour productivity.

The second key priority of the budget is the implementation of the Growth and Sustainable Development of Regions Public Investment Programme to the amount of BGN 500 million. This programme is a new mechanism of financing public investment projects and programmes on the principle of competition which will tie costs more closely to the commitments taken in the Government programme. Determination of the annual amount of investment project funds will be linked to the economic cycle, to the process of absorption of EU funds and to the critical review of the existing policies and programmes. This mechanism aims to overcome the internal imbalances in the budget structure where public investment costs are highly limited on account of preserving and increasing the administration costs and the maintenance costs. The introduction of this mechanism will urge the spending units\' activity and will contribute to the better quality of their proposals.

The relations with local authorities are an emphasis and a priority of the Government in the medium term. The 2014 budget provides for ensuring national support to the sectoral policies in the field of education, health care, social activities and culture that are implemented with the participation of local authorities. Financing for improvement of the municipal infrastructure and for building municipal roads is ensured.

Social policy and measures aimed at reduction of poverty and promotion of social inclusion are another key priority of the Government in the medium term. It will help perform one of the basic social functions of the state, i.e. avoiding the state of poverty and reducing the number of poor people. The practice shows that poverty and income inequality contain economic development in the long run. This priority will be implemented by a specific set of social measures aimed at supporting several target groups - children and family, disadvantaged people, elderly people, households and the business.

In conclusion, the fiscal parameters of the 2014 Budget reflect the Government\'s policy aimed at changing the allocation of public resources, bringing the country back to the track of sustainable growth, promoting investment and employment and ensuring the social protection needed for the vulnerable strata of society.

 

Members of Parliament, dear colleagues,

I wish you fruitful deliberations on the draft 2014 Budget!