At 12,954.5 million leva, revenues and aids under the consolidated fiscal programme for the first half of 2009 represent 39.8 per cent of the annual target, according to a report by Deputy Prime Minister and Finance Minister Simeon Djankov on the implementation of the executive budget for the January-June period, which the Cabinet considered at its meeting on Wednesday.
The revenues reported are 92.3 per cent of the level for the same period a year ago. By June 30, 2009, the fiscal reserve stood at 8,264.6 million leva.
The collection of VAT and other tax revenues slowed down in the first half of the year, mainly because of the economic downturn and a substantial contraction of foreign trade.
As a result of the deepening global crisis, the prices of oil, metals and other staple raw materials on international markets have dived. Production, consumption and foreign trade are shrinking, unemployment is rising, and construction is in a recession. These factors are having an adverse impact on revenues from corporate and personal income taxes, social and health insurance contributions, and property taxes to municipal budgets.
Tax revenues amounted to 10,123.8 million leva (78.1 per cent of the total revenues under the consolidated fiscal programme) for the first half of 2009. Of these, direct taxes accounted for 2,258 million leva (45.7 per cent of the annual target), and indirect taxes for 4,901.9 million leva (35.5 per cent). A total of 3,051.8 million leva were collected in value added tax (nearly 79 per cent of the January-June 2008 level), and 1,779.8 million leva in excise duties.
For the first half of this year, the consolidated fiscal programs showed a 183.8 million leva surplus.
Djankov proposed, and the Government adopted, extra measures to reduce non-interest expenditures and transfers under the executive budget for 2009 by 1,150.3 million leva so as to guarantee a stable fiscal position, considering the expected shortfall in revenues compared to estimates. The budget expenditures of state bodies, ministries and central-government departments will be cut by 366.6 million leva, executive budget transfers to other budgets and off-budget funds will be reduced by 42.3 million leva, and other target expenditures, capital expenditures and subsidies under the central government budget, including for absorption of state investmentloans, will be pared by 664 million leva.
The revenue side of the budget is likely to show a shortfall of nearly 6,000 million leva, which means that, according to the latest forecasts, the national budget deficit for the year will be 2,500 million leva, Djankov said.
The cuts affect mainly capital investments. Wages and pensions will not be reduced, the Finance Minister added.
It is recommended that the Supreme Judicial Council, the National Social Security Institute, the National Health Insurance Fund and the public higher schools, which have budgets of their own, take the action necessary to optimize and limit their budget expenditures for 2009.
As a result of the economic deceleration and intervening changes in Bulgaria's business climate, the Agency for Economic Analysis and Forecasting has revised its projection and expects the country's GDP to contract by some 6.3 per cent this year, compared to a 4.7 per cent growth planned in the macroeconomic framework of the 2009 budget.
After non-interest expenditures are cut by 1,156 million leva, as decreed by the Government, "a lot more will have to be done to achieve a balanced budget," the Finance Minister said. "The rest of the deficit will be offset by increasing revenues."
The tax and excise duty compliance rate will be improved, Djankov said. "Bulgaria ranks second in the EU in VAT compliance, which is why the leadership of the National Revenue Agency will not be replaced," he noted. "A lot can be done by Customs, and the collection of excise duties, mostly on fuels and alcohol, can be increased by as much as 1,200 million
leva-plus," the Finance Minister said. "Payment of excise duties on fuels has dropped by a factor of 2-2.5, and part of this decline is due to smuggling rather than to the lower prices," he argued.
Since the July 5 parliamentary elections, Bulgaria's political and financial risk has decreased by 1.5 per cent, and if Bulgaria decides to issue bonds, they can bear 5.5-6 per cent interest, Djankov noted. "This means that the world regards Bulgaria as a less risky investment destination under the new Government," he commented. "The risk has been reduced because of the conservative fiscal policy we will be following," he added.
2010 BUDGET PROCEDURE
The Council of Ministers has approved a decision on the 2010 budget procedure, targeting an improvement of budget planning, more effective spending and more responsible allocation and management of financial resources. Conditions are thus created for better discussion and transparency in decision-making on government policies and catching up on the two months' delay in the budgeting schedule.
The Finance Minister will discuss the parameters of the draft budgets with the first-level spending units and will consult the National Association of Municipalities on the budget relationships of the local authorities with the central government budget.
The 2010 budget procedure will set requirements for the preparation of proposals for new investment projects which are to be financed in 2010 by contracting government and/or government-guaranteed loans.
"The 2010 budget will be more difficult than the 2009 budget because the budget surplus with which we started this year will not be there," Djankov told journalists. He insisted that the 2010 national budget must be balanced.