Instead a government seeking work schemes by which to encourage foreign investment and create new jobs, the negatives from the lack of state social policy will again be borne by businesses. After lengthy negotiations, conducted in several stages, trade unions and employers agreed as of 1 January 2012 the minimum insurance thresholds in 50 of the 85 economic professional activities to be raised. The average negotiated increase there reached 6.9% compared to last year’s rates. Because of the lack of consensus in other social sectors Minister Mladenov imposed an administrative increase of 4.5% as was the increase in the average insurable earnings in 2011. This way more than 2 million employees and their bosses
will pay on average by about 6 percent
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higher social security contributions, even though the book social security burden for employees remains 12.9 percent from their wages, and for the employer 17.4% of the paid wages.
The result of this seemingly encouraging economic measure will probably have negative consequences. In this case, social ministry and the cabinet of GERB as a whole appear to be trying to protect the the National Insurance Institute, which in 2011 was seriously troubled. The minimum income thresholds are a key indicator for determining the budget of the state security system, because this is the base to plan its revenue and subsidies to it.
But what happened last year? Although thresholds again jumped by about 5.6%, the net effect was frustrating. The rulers expected an additional revenue of BGN110 million, but instead – they received a resonant slap in the face by almost BGN300 million in deficit in the accounts of the institute. Expecting an approaching collapse, the government sacked the chairwoman of the Institute Christina Mitreva for improper planning, although the latter was actually the work of the Ministry of Finance. Today one can safely assume that the estimates of the new boss Biser Petkov will not come true. Just because the problem is not where they seek it.
As noted by the President of the Bulgarian Industrial Association (BIA) Bozhidar Danev there is no assessment of the impact of increases in the minimum threshold wage and its effect on the economy and the state’s pension insurance system. The significant date are not anywhere else, but just in the records of the Insurance Institute and the National Statistical Institute. According to recent data from the two institutions during the third quarter of 2011 on the labour market in Bulgaria there were 3.018 million people, of which insurance were paid by 2.716 million. This effectively means that 10% of workers or
over 300,000 people do not contribute anything
to the social security system.
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Indicative of the opposite effect of the reforms is another statistical report. As of October 2011 on average 2.666 million were insured in Bulgaria, while for 2010 the number was by 165,000 more. Obviously there is a lasting trend more and more people to work on the black market and small and medium businesses charged with excessive taxation and social security burden – to turn to the informal sector. Moreover, the government statistics is not a reliable indicator of the size of the informal economy. Some experts say its level has long exceeded 20 percent of the entire economy and is now approaching one-third.
Not more encouraging are the indicators of the average insurable earnings. The state expected it to reach a level of BGN610 for 2011, but up to October, it was only BGN588 – which is a rate of lagging that can not be caught up by any holiday bonuses (if any) in the last quarter.
For its part, the business also see no light in the tunnel coming from the anti-crisis measures of the cabinet. The increase in payroll taxes certainly will not reduce the scepticism of managers. A study by BIA at the end of 2011 showed that 71% of 500 executives of companies expect an even more difficult 2012, as almost every third of them plans to cut jobs.
Half of employers intend to freeze wage levels, and every fifth one is even considering to reduce pays. A startling fact is that last year 56% of firms cut some of its staff. Those dismissed either enter the labour market for an indefinite period of time and state cannot help them, or pass into the informal sector.
