Fiscal framework of government

During the elections often talked about the most important task of the new government was quick to correct the current budget of the country, and then focus all their attention to the preparation of Budget 2010.

This has already happened and now it’s the new rulers did something else, namely presented his vision for a fiscal framework by the end of his mandate. This is really commendable, because it observes the annual fiscal cycle and the predictability of maintaining relations with government, despite the large degree of uncertainty. It would not be surprising, however, if the crisis develops (good or bad) changes the current fiscal framework beyond recognition in 2010 and subsequent years.
The main objectives of the government (so kakto are set out in this mid-term fiscal framework) are the following: increasing wealth, stability of the currency board, public expenditure-oriented economic growth and improving the business environment.
While the first two desirable extras are either above or below visible, the other two targets are interesting times. How public expenditure can contribute to the highest possible economic growth and how to improve the business environment?
IME recent study ( „The optimal size of the state“) corresponds precisely to the first question – to maximize economic growth, the government sector (ie public spending) must not be greater than 25% of GDP. In recent years, government spending in Bulgaria are always around 40 percent, that is far from optimal level. Survey results show that especially in times of political crisis, which increase the public sector in the name of „economic incentives“ rather hinder the recovery of economic growth and job creation, rather than assisting them.
All this means that achieving (or restoration) of economic growth in Bulgaria, passes through the contraction of public expenditure in the medium-term fiscal framework that can easily reach levels of 35% of GDP. This would mean the government to focus its efforts in areas such as education, health, pensions and security, but to revise all his other activities, or may be borne by the private sector or are simply unnecessary. Such policies would enable and otmrazyavaneto ‘pensions. In fact this policy could also lead to more efficient administration, with less public sector employees, but contrast with higher wages.
As for improving the business environment, then there is a certain expectation of a serious buzz – mainly because of the current work of the Finance Minister (Doing Business). Currently provides a timid reduction of benefits (such as home by 2 points, a total of 5), which would hardly be enough. Recently, we presented our proposal for their reduction targets by 10 points and it still next year. This measure is not only possible but absolutely necessary if we aim for more investment and create / retain jobs.
Outside the sphere of taxes also has a lot to be done to improve the business environment. Heavy regulation of business administration cumbersome and very high corruption play a negative role. Talk about it long and at least there is consensus on words that should be changed, but things are developing very slowly. It is good that the new government almost immediately took a character decision – namely, reducing the minimum registered capital of only 2 euro. Remains to be done, including the launch of the business, but this type of decisions show the right path .*
* When talking about the interaction of citizens and business administration, has another solution that would be character, namely the ubiquitous introduction of the principle of tacit consent.

––––––––––––––––– ––––––––––

Peter Ganev, IME