Budget 2011 – small buffers, many deficits

The draft budget 2011 introduced something new – the document is published, and it further in September. This is clearly a plus. So far only happened in November after its adoption by the government. Another positive in the draft to maintain rates. Whole spring listened requests and desires for the lifting of taxation by which aimed to transfer an additional burden on businesses and the labor market – something that would impede recovery from both crisis and long-term development. The budget is however still trying to workaround the lifting of taxation. The increase in excise duties will bring 165 million euro over a possible increase in depreciation tax will also aggravate the economy, although no specific draft budget calculations. Moreover, it is possible that the increase in depreciation to impact negatively on investment so that all may lose their removal (including budget). Unclear why constantly trying to lift the tax, since it proved detrimental. Do you recall that in 2010 had increased excise duties to bring 450 million more revenue, but now it appears that they will be 300 million less. I.e. 750 million lost revenue. Higher rates have more revenue, it must understand and unions who want to permanently increase the benefits. Higher revenues come from reduction of taxation, which encourages investment and job creation. No stress test Recently been made to stress testing of banks in the EU – through them to assess whether they would have passed if the situation does not develop well. This is common practice and the preparation of budgets. In the draft evaluation should be what would happen if the economy does not grow as good as expected. But no. In 2011 the government predicted the economy will produce 77 billion BGN 68 billion in 2009 This is good – but what happens if this increase does not happen? How will the budget situation where the economy is not increased by 9, but only by 5-6 billion? What would happen if in 2011 a new crisis? According to a new study by Carmen and Vincent Reynhart serious crisis after a high risk of another crisis („double dip“, as some recently). But even if there is no new crisis, economic growth is often weak after the crisis. In other words, now need to stress test is even greater. The budget must be able to withstand even a negative situation. This means that it must have buffers. But no such – buffer in the draft for 2011 amounted to 0.2 percent of GDP, but much of it is already allocated to spending (for Lyulin highway). In other words, the budget can only withstand the optimistic scenario. In the worse case scenario blew the budget will be from revenue. And that’s not all. The budget problem unless there is revenue expenditure problem – the government is constantly costs are not included in the budget. This hardly would suddenly disappear in 2011 as a magic wand. So we risk by cost and this risk is not covered with a buffer. While the budget is based on relatively optimistic forecast, it will continue to have budget deficits throughout the period until the end of the mandate of the government. Which means that soon there will be no money to spend in fiscal reserve and will have to take large loans. By the end of the mandate of the Government it will gain about 9 billion budget deficits, ie will have to take loans for approximately the same amount. And it is in an optimistic scenario for the economy. In the negative scenario necessary funding will rise significantly and may reach 12-15 billion or more. This will be the largest increase in government debt from the time of communism here. And in itself is quite risky – you remember that in 1990 Bulgaria collapsed under the weight of debts of communism. Not to mention that, besides the risk of bankruptcy, there is a risk no one wants to give so much credit to Bulgaria or the interest to be high. Already in 2011 the government relies on a large increase in debt – according to the draft it could reach 14 billion levs at about 9.5 billion now. Separately pledged 0.8 billion in government loan guarantees primarily to BDZ. Thus, only in 2011 can be happy with 5 billion new loans! Hard to convince many investors to come to Bulgaria in such explosive debt or bank interest rates will fall. If we look at the budget, we see that increased interest costs (due to new debt), the cost of social ministry (not expected reduction in unemployment) subsidies for agriculture (failure), power structures (SANS, police and army). Even increase the cost of administration. No trace of reforms. According to international comparative research in Bulgaria most of the budget is wasting, ie many costs can be saved without damaging the quality of public services. Such things are not visible in the budget. True, the report refers to the budget that need a review of cost effectiveness. But in actual budget expenditures remain ineffective.   ––––––––––––––––– –––––––––– Georgi Angelov