The Confederation of Employers and Industrialists in Bulgaria, after discussing with its members as a whole, expresses support for the draft Law on the State Budget of the Republic of Bulgaria for 2021 and the Updated Medium-Term Budget Forecast for the period 2021-2023.
We believe that the projects were developed at a high professional level and are in accordance with the current budget forecast, as well as with the current legislation, including the amendments, which take effect from the beginning of the 2021 budget year, by expressing our synthesized comments on the bills.
1. The draft budget for 2021 is balanced, given the unprecedented situation in which Bulgaria finds itself, due to the permanently complicated epidemic situation caused by the COVID-19 pandemic. The draft budget 2021 provides for the provision of funds to support businesses, households and government bodies charged with activities to contain the pandemic and the consequences of COVID-19, albeit at the cost of a budget deficit.
2. Over the years, KRIB expressed consistent support for the policy of fiscal consolidation and balancing of the country's finances in order to reach a balanced position of the budget balance. The current unprecedented situation, in which the country is fighting with all available resources to limit the spread of the pandemic, as well as the observed decline in economic activity and employment, necessitate planning a budget with a deficit of around -4,9% of GDP. If the scope of the budget balance excludes the effect of the temporary COVID-19 measures foreseen for 2020 and 2021, the deficit remains within the limit of the national fiscal rules, varying between 1,5 and 2% of GDP for the period. We support the stated intentions to introduce fiscal incentives through financing and investment spending, which will mitigate the negative effects of the crisis caused by the pandemic on growth and, accordingly, support the labor market in the difficult situation in which the country finds itself.
3. The draft law on the budget states that the maximum amount of the new state debt will be BGN 4,5 billion, which is in line with the needs of the state, given the emergency situation in which we find ourselves. The projected levels of government debt within the limits of up to about BGN 32 billion or 25,6% of the projected GDP levels for 2021 remain significantly below the level of the maximum permissible reference value of 60% laid down in the Maastricht convergence criterion, which Bulgaria remains among the leading EU member states in terms of this indicator.
4. Revenues are expected to increase in nominal value by about BGN 4.1 billion compared to the revised estimate for 2020, and in real terms they will increase to 38,3% of GDP. The growth of revenues is based on the funds provided for Bulgaria by the EU Recovery and Sustainability Mechanism, the expected growth of tax and insurance revenues as a result of increased collection, the effect of the government's discretionary spending measures with a positive impact on revenues, the improvement of the macroeconomic indicators, as well as the expected one-time receipts from concessions, including from the Sofia Airport concession.
5. In the area of fiscal policy, KRIB welcomes the established tax stability over the years and the maintenance of low levels of tax rates, both for corporate taxes and personal income taxes, which contributes to economic growth. We are also consistent in supporting the main priorities of improving collection and tackling the shadow economy through activities to improve compliance, prevent and counter tax fraud and tax evasion, and improve the business environment and reduce of the administrative burden and costs for businesses and citizens.
6. Expenditures are projected to increase for the period by about BGN 3,8 billion compared to the revised estimate for 2020, and in real terms they will increase by 1,3% of GDP to 42,2% of GDP, including the expenses for economic and social measures and measures related to the health care system, directly related to overcoming the consequences of the pandemic. Regardless of the fact that the parameters of the expenditure part of the budget for 2021 exceed the 40% rule under Art. 28, para. 1 of the ZPF, after eliminating the effect of temporary costs for COVID-19 measures, they are within the limit.
The increase in spending is due to both COVID-19 measures and spending on other government priority policies in various areas, mainly in social and health insurance payments, in staff costs, in maintenance costs and in capital costs. Priorities are placed on measures related to: "Income Policy", "Pension Policy", as well as upgrading sectoral and horizontal policies in the sectors: "Education and Science", "Health", "Social Policy" and "Defence". .
7. KRIB does not support an increase in the minimum wage from BGN 610 to BGN 650 as of January 1, 2021.
8. We are consistent in the position advocated by the nationally representative employers' organizations for the adoption of a package of measures providing for the suspension of the gradual increase in the amount of the minimum wage until the adoption of clear and objective criteria and a mechanism for determining the amount of the minimum wage for the country and repeal of the minimum insurance income. We strongly insist on negotiating a mechanism for determining the amount of the minimum wage and fulfilling the commitments made by the Minister of Labor and Social Policy to ratify Convention 131 of the ILO.
9. We support the proposed preservation of the level of the maximum insurance income of BGN 3000, as well as preservation of the amounts and ratios of insurance contributions for the state social insurance funds and preservation of the amount of health insurance contributions.
10. We are consistent in our position on:
- Repeal of the minimum insurance thresholds (minimum insurance income by main economic activities and qualification groups of professions)
- Cancellation of payment at the expense of the employer for the first three days of temporary incapacity for work due to illness (sickness) of employees
- Waiver of additional remuneration for acquired work experience and professional experience (class of time served)
11. We believe that the planned quota of BGN 350 million (the same amount as in 2020) for food vouchers under Art. 209, para. 7 of the Law on Corporate Income Taxation is extremely insufficient and does not reflect the current needs of the market and the economic realities in the country. That is why we insist:
1) The quota for food vouchers for 2021 should be increased to 455 million.
2) The tax relief of the nominal non-taxable value of food vouchers under Art. 209 of the ZKPO to be increased from BGN 60 to BGN 120.
First of all, 2020 is a crisis year for the economy, and many employers, squeezed by the economic situation, have stopped or reduced their orders for food stamps for several months or for an indefinite period of time. The Ministry of Finance expects 2021 to be a year of economic recovery with GDP growth of 2.5%. This also implies a partial restoration of the food voucher market, accordingly an increase in the quota should be foreseen.
At the same time, the tax relief of BGN 60 per month for food vouchers was fixed in the Bulgarian legislation more than 10 years ago (2009), when this amount represented a significant part of the minimum wage (25%). From a macroeconomic perspective, increases in wages and productivity have driven the monthly tax-free value of food stamps since the system's inception to less than 10% of the minimum wage. In 2021, an increase to BGN 650 is planned, so food vouchers will represent an even smaller share of it. Food vouchers are one of the most appropriate incentives for employers, as they reduce their tax costs while increasing the motivation and productivity of their employees, and workers' consumption in times of crisis, as they increase their purchasing power.
That is why we propose an increase in the tax relief of the nominal non-taxable value of food vouchers under Art. 209 of the ZKPO from BGN 60 to BGN 120.
We believe that this measure will help employers to stimulate their employees in this difficult period without excessively burdening the companies' budgets. In the most likely scenario according to our estimates, up to 30% of employers will increase the amount of food vouchers to BGN 120 per month. This means that approximately 146 employees will receive 120 BGN food vouchers per month, and the remaining 300 users of the system - 60 BGN each. For this purpose, an annual quota of approximately 455 million BGN will be required.
We expect the proposed changes to lead to multiple benefits in the medium and long term – increased consumption, increased VAT collection and brightening of the economy.
This is also the position of the Association of Food Voucher Operators in Bulgaria, which is a member of KRIB.
12. We draw attention to the continued postponement of the reform in the mechanism for determining the municipal waste fee in the presence of a developed and adopted mechanism for determining the municipal waste fee according to the "polluter pays" principle, considering that its entry into force should not be delayed more.
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