23.10.2017

The Ministry of Finance has published the draft 2018 State Budget of the Republic of Bulgaria Law and the updated medium term budget forecast for the period 2018-2020 which presents the arguments standing behind the Law.

In the period 2018 – 2020 the government will continue to target its efforts at sustaining the economic and financial stability, as well as at creating conditions for economic growth in line with the priorities, objectives and measures laid down in the Governance Programme of the Government of the Republic of Bulgaria for the period 2017 – 2021.

The key parameters of the budget framework for the period 2018 – 2020 show that the fiscal targets are realistic while complying with the established fiscal rules. The updated forecast keeps the deficit targets  under the Consolidated Fiscal Programme (CFP) laid down in the spring medium term budget forecast for the period 2018 – 2020 at 1.0% and 0.5% of GDP for 2018 and 2019, respectively, and reaching a balanced budget position in 2020 by means of adhering to smooth and well-considered consolidation steps of 0.4 – 0.5% per year for the forecast period.

The income policy is oriented towards maintaining economic growth, improving business environment and encouraging investment by means of keeping low levels of the rates of corporate income tax and personal income tax, limiting tax fraud and improving macroeconomic and fiscal sustainability in the long term. The revenue side of the budget in the medium term shows a tendency to decrease from 36.2% of GDP in 2018 to 35.5% of GDP in 2020. In the medium term, there are no plans for significant changes in the area of taxes which are one of the key instruments of the fiscal policy. In order to reach the minimum excise duty levels in the EU and in accordance with the agreed transition period, the excise duty for cigarettes will be gradually increased in view to reaching the minimum excise duty of BGN 177 per 1.000 pieces as of 01.01.2018.

The possibilities for funding public expenditure policies are limited from 37.2% of GDP in 2018 to 35.5% of GDP in 2020 in line with the envisaged deficit targets under the CFP and the expected level of the revenue side of the budget. The total expenditures under the CFP in the medium term show a tendency to decrease as a percentage of GDP and have a major consolidation contribution to achieving the deficit targets.

The priorities in the 2018 Budget are focused on measures related to continuing the reforms in the Education sector, to defence and security, social and healthcare policy and the Presidency of the EU Council in the first half of 2018.

The 2018 Budget ensures support for the pedagogical specialists and attracting young people to the profession. The increase in the remuneration of the pedagogical staff in the secondary education system, which started in 2017, is continuing in view to attaining the double increase in the amount of funds intended for remunerations by 2021 envisaged in the governance programme of the government. In order to link funding with the quality of education, as from 2018 the system of delegated budgets will be changed and the funding will depend not only on the number of children and pupils but also on the number of classes, the specificities of the region where the school is located and, in the longer term, on the quality of the education process.

The 2018 Budget ensures funds for maintaining and developing the national defence capacities as well as the capacities related to the collective defence, including funds for implementation of the investment projects approved by the National Assembly for acquisition of aviation equipment and multifunctional module patrol ships. There are plans to increase the personnel expenditures needed for the implementation of the defence and security policies.

In the social sphere, as from 1 January 2018 there will be an increase in the allowances for raising a child aged between 1 and 2, for raising a child under Article 7, paragraph 1 of the Family Allowances for Children Law and the minimum daily amount of the unemployment compensation. In 2018, the funding for the social services Personal Assistant, Social Assistance and Home Assistant will continue in view to improving the quality of life for persons with disabilities as well as for children that need permanent care in their daily life. There are also plans to increase the resources for personnel for social workers in view to preserving the administrative capacity and the proper functioning of the structures to the Minister of Labour and Social Policy.

In the healthcare sector, an additional right of expenditures of BGN 400 million under the NHIF budget is envisaged for 2018. The priorities continue being targeted at emergency care, e-healthcare, maternal and child care, assisted reproduction, medical establishments and medicines policy. There will be some prerequisites for control and effectiveness of expenditures in the system of health insurance and for quality assurance of treatment and access to medical help. Some additional expenditures are also planned in support of the Concept Paper for Development of Emergency Care in the Republic of Bulgaria 2014 – 2020 adopted by the Council of Ministers.

The updated medium-term budget forecast for 2018 – 2020 envisages an increase in the minimum wage from BGN 460 to BGN 510 as from 1 January 2018, to BGN 560 as from 1 January 2019 and to BGN 610 as from 1 January 2020.

The social insurance policy in the 2018-2020 period provides for a retention of the social security and insurance contribution rates to the public social security funds. The social security contribution to the PSS Pension Fund increases by 1 percentage point for 2018. The minimum contributory income for self-insured persons increases in the 2018 – 2020 period as follows: BGN 510 for 2018, BGN 560 for 2019, BGN 610 for 2020, with the bracket for determining a differentiated minimum contributory income according to the contributory income being eliminated. The change in the mechanism will result in an easier administration of this type of income both for the NRA and for the taxable persons. An increase in the monthly minimum contributory income for registered farmers and tobacco producers from BGN 300 to BGN 480 is also planned since the start of 2018.

As to the pension policy, the pension entitlement age will continue increasing by 2 months for women and by 1 month for men as from 1 January each year in the 2018-2020 period. The required contributory service for an entitlement to pension for both men and women continues increasing by 2 months each year until reaching 35 years and 10 months for women and 38 years and 10 months for men in 2020. The minimum retirement age for those working in the security sector continues increasing by 2 months until reaching 53 years and 6 months in 2020.

Funds for the implementation of the majority of the large projects under Transport and Transport Infrastructure OP 2014 – 2020, such as Lots 3.1 and 3.3 from Struma highway, rehabilitation of the railway infrastructure and extension of the Sofia metro, are estimated in the period under consideration. The Regions in Growth OP is also characterised by huge infrastructure expenditures.

Government debt management will comply with the underlying objectives and rules of the fiscal policy and will take account of the three-year status and forecasts of the key macroeconomic indicators. Nominal government debt went down to BGN 25,199.3 million as of the end of the first quarter of 2017 as compared to the BGN 25,751.1 million reported at end-2016, while nominal government debt as of the nine months of 2017 was already BGN 23.5 billion, envisaged to reach BGN 23.6 billion by the end of the budgetary year on the basis of the expected performance of the debt parameters, or below the debt limit of BGN 23.9 billion planned in the 2017 State Budget Law.

A new domestic debt in the form of government securities of up to BGN 1.0 billion is planned to be assumed in 2018 to partially cover the forthcoming debt repayment totalling BGN 1.6 billion, including BGN 1.2 billion of maturing government securities on the domestic market and BGN 0.4 billion of external debt repayment. The remaining part of BGN 0.6 billion will be covered by savings from the financing secured for the deficit planned in 2017 as a result of the expected balanced budget at the end of the year. The negative net debt financing is expected to result in a government debt drop down to BGN 23.5 billion as at end-2018, or 22.3% of the forecast level of GDP.

With a decreasing government debt-to-projected GDP ratio in the three-year period, the debt is expected to amount to BGN 23.8 billion, or 20.0% of GDP by the end of 2020, which is caused by the country’s improved budget stance.