Bulgaria '08 budget to target even bigger surplus

26.10.2007

The key parameters of Bulgaria's 2008 budget plan are the 10% flat tax coupled with an even tighter fiscal policy, shows a report issued by the finance ministry.

The finance ministry has budgeted an inflation of 6.9% for 2008 and a record-setting c/a deficit of 21.9% of GDP.

Therefore the top priority of the budget plan is to counteract the deficit. To this end, the government will aim for a budget surplus of 3% and throughout the year will seek further opportunities for over performance.

In line with the restrictive fiscal policy, the planned increase in budget-subsidised wages from July 1, 2008 is 5% to 10%.

The tax policy initiatives that usually precede the budget bill have not yet been submitted for review by the government but the finance ministry report indicates that the flat tax rate on personal income will be fixed at 10%.

There will be several deduction brackets for the liberal professions: 10%, 25% and 40%.

There will be one-off compensations for low-income earners in the budget-subsidised sector who are expected to suffer from the introduction of the flat rate as they will lose their untaxable income base. The size of the compensations was not specified in the report.

The minimum contributory income will increase by 20 levs to 240 levs in 2008 and will be revised upwards by 10 levs in each of the following two years. The maximum contributory income will be raised from 1,400 to 2,000 and will stay there through 2010.

The patent tax is reclassified as local tax and will be collected by the municipalities.

The report also shows that the government has accepted the proposal of tobacco monopoly Bulgartabac to level the cigarette excise with the EU minimum in three goes through 2010.

The initial plan of the incumbents was to implement half of the increase in 2008 and the other half in 2009 but that would have spiked cigarette prices. A top-selling brand like Victory, for instance, would have appreciated to 3.40 levs a pack from 2.60 levs at present. It is not clear what will be the effect on cigarette prices from the decision to opt for three equal excise hikes with the first 33% adjustment coming in 2008.(Dnevnik)