Conflicting reactions to 2010 draft budget

The social partners’ reactions to the 2010 draft budget proved to be divided at a meeting of the National Council for Tripartite Cooperation in October 2009. The trade union side contends that the government is transferring the burden of the crisis to workers and the poor. Despite their initial support, the employers believe that the macroeconomic framework is rather optimistic and that it lacks real focus in finding ways to emerge from the crisis.

At a meeting of the National Council for Tripartite Cooperation (NCTC), the government recently presented its draft for the 2010 budget, which encompassed zero deficits in order to avoid a prolonged recession and currency pressure. Revenue sources were, once again, made dependent on indirect tax proceeds – including through increases in excise duties on tobacco and on electricity used in industry. Direct taxes – that is, on workers’ incomes and businesses – are to remain unchanged. With regard to budgetary spending, the government has earmarked five priority areas: namely, social measures, healthcare, education, the environment and transport infrastructure.

Trade union concerns

The Confederation of Independent Trade Unions in Bulgaria (Конфедерацията на независимите синдикати в България, CITUB) expressed its concerns over the government’s budget proposals. In particular, it criticised the following aspects:

  • the proposed low and decreasing redistribution of gross domestic product (GDP) through the budget (38.4%), which it considers risky in times of economic recession, posing a threat to a possible economic recovery as well as imposing serious problems on the basic budget;
  • maintaining a budgetary balance during a recession period by decreasing internal consumption and investment activities, which it believes will not stimulate economic recovery and growth;
  • the reliance on the export market to support economic recovery, while internal consumption is being undermined and the measures needed to stimulate it are not being envisaged;
  • the prioritisation of entry to the eurozone without proper consideration of the preliminary preparation needed among the population for this step.

Moreover, the trade unions are not in favour of the plan to reduce recourse to active labour market policies by more than two-and-a-half times. They argue that this will more than double the rate of unemployment increase compared with 2009, and that unemployment will rise to about 15%–16%. In turn, this will have serious consequences for the deficit in the Employment Fund, placing an additional burden on the social benefit system and on the funds required to finance this system.

Bulgaria’s other main trade union organisation, the Confederation of Labour Podkrepa (Конфедерация на труда ‘Подкрепа’, CL Podkrepa), has been particularly critical of the government’s refusal to increase the country’s 2009 minimum wage amount to BGN 240 (about €123 as at 14 December 2009), as well as its lack of an effective income policy. The net minimum wage amount for 2010 will be BGN 188 (€96) and the poverty threshold will be BGN 211 (€108). As a result, hundreds of thousands workers will be forced to live on incomes below the poverty threshold. According to CL Podkrepa, the government could and should step up the efforts needed to combat the informal economy, which would in turn help to increase the sources of budget revenue.

Employers’ position

The Bulgarian Industrial Association (Българска стопанска камара, BIA) approved of the government’s aim to achieve a ‘balanced and cautious budget’. However, the association considers overly optimistic the expected 2% decrease in GDP, along with the projected €3.3 million in foreign investment and the currency exchange of BGN 1.45 for one US dollar, arguing that it will be reflected in the country’s trade balance. BIA adds that the increase in excise duties for electricity in industry and the disproportionate increase in waste charges will affect companies’ capacity to emerge from the economic crisis. The association is also calling for an end to the alleged discrimination in the area of insurance, whereby under the Social Security Code the total sum of civil servants’ social security contributions is paid by the state.

Elsewhere, the draft budget was well received by the Confederation of Employers and Industrialists in Bulgaria (Конфедерация на работодателите и индустриалците в България, CEIBG), which stated that the draft bill was realistic given the current global economic crisis.

Commentary

The dispute over Bulgaria’s 2010 draft budget raises once again an essential question – namely, whether a budget deficit is possible in countries with a ‘currency board’ – that is, a mechanism involving a fixed exchange rate and a restrictive monetary policy (BG0408202F). According to trade union experts, the minimum budget deficit of 1%–1.5% is acceptable and does not represent a danger for the currency board, which has been guaranteed by a minimum acceptable currency and fiscal reserve. In this sense, it is argued that the cut in the number of social measures and the reduced funding for the healthcare sector is too high a price in the current economic crisis. Nonetheless, the Minister of Finance, Simeon Diankov, has defended the government’s adherence to a strong fiscal and budgetary policy, arguing that there is no ‘controllable budget deficit’ and that the country could not risk a fall in the currency board, nor the financial and economic chaos that could arise as a result.

Lyuben Tomev, Institute for Social and Trade Union Research (ISTUR)

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