Succinctly Finance Minister Rumen Porozhanov systematized the reasons for the update of the state budget. On the one hand, this is the world situation – „a significant departure from the assumptions on key indicators in the macroeconomic frame“ on the other – overstated revenue projections for the state budget, and a third one – cost pressures (need to provide for some additional costs in budget systems).
Among the „global“ reasons
the Minister distinguished the contribution of the reduction in international prices of non-energy commodities that began in 2013, which continued this year, too. An additional factor limiting nominal growth not only in Bulgaria, was stronger than expected appreciation of the euro against the dollar. EU inflation is at historically low levels, with the trend to continue for a longer period than it was expected a year ago. For Bulgaria the updated forecasts suggest a negative consumer price inflation amounting to 1.1 percent against planned in the previous forecast a positive value of 1.8 percent. Political uncertainty in Bulgaria and the subsequent resignation of the previous government, and the timing of early elections for the beginning of October also caused deterioration of the economic expectations for businesses and households. The revised estimates for 2014 provide a real GDP growth of about 1.5 percent annually, which is a slightly more pessimistic scenario than the one set in the macroeconomic Budget 2014 where it said growth of 1.8 percent.
The internal fault
The reasons for failure of the prediction are complex revenue – macroeconomic, administrative, legal and others. Reported data to the end of August suggested a major slowdown in revenues from VAT on imports, which form an essential part of the tax revenue in the budget. Revenues from VAT on imports for the first eight months of the year amounted to 2.389 billion levs, as compared to the same period of the previous year, a decrease of 107.7 million levs. Compared with the annual plan, the revenues from VAT on imports accounted for only 54.8 percent.
Serious delays are expected in excise revenues. Excise revenues for the first eight months of 2014 amounted to 69.7 million levs, which is 58.7 percent of the plan for the year. Compared to the same period in 2013, revenues from excise duties were 20.0 million levs less (against a planned growth of 7.9 percent) compared to those reported for 2013. Another factor that has a negative impact on revenues from excise duties in 2014, was the introduction of the possibility of reimbursement of excise duty on fuel used by farmers through vouchers, the loss to budget from which is estimated at around 50 million levs. Estimates outline a shortfall of annual targets for 2014 in excise revenues by about 318 million levs.
Overstated turned out to be the estimates regarding revenues from corporate taxes – for 2014 the projected growth of declared income tax for the year was 2.0 percent, while on the basis of the submitted reports a decrease in the declared tax by 3.4 percent was registered. Projections indicate revenues from corporate taxes annually to remain at about 79 million levs under the plan.
Estimates for 2014 provide for revenue shortfalls in annual terms amounting to 1.062 billion levs (1.3 percent of projected GDP), as they reflect the expected effects of measures taken to enhance revenue collection by the end of the year.
Cost pressure
Some budget systems are put in a situation they can not perform their functions and responsibilities after their expenditure ceilings have been reduced in the last four months of the year. The Interior Ministry, for example, where over 80 percent of the costs are formed by personnel costs, the need for additional resources amounts to 125.7 million levs, of which 110 million levs for staff costs and 15.7 million levs on maintenance of the Ministry of Interior for 2014. Shortages emerged in the financing of social security payments to the budget of the Ministry of Labour and Social Policy, too, where it amounted to 50 million levs, of which 36 million levs in aid to households for employment programmes and ensuring the payment of social benefits in the system of social assistance and another 14 million levs in maintenance activities on the implementation of the basic functions of the Minister of Labour and Social Policy.
Ministry of Healthcare is waiting for 24.2 million levs, the Ministry of Regional Development has a shortage in the amount of 16.4 million levs, of which 13 million levs for winter maintenance of the national road network and 3.4 million levs in benefits due to expropriation property and payment activities in priority infrastructure projects.
The BANKER
