Bulgaria’s draft 2004 budget aims at spurring growth by cutting taxes

SOFIA – The Bulgarian government approved its 2004 draft budget yesterday, envisaging a slight fiscal loosening and bigger-than-planned corporate tax cut to spur growth and reduce unemployment in the poor Balkan country. The government announced the larger tax cut just three days after the ruling party of Prime Minister and ex-king Simeon Saxe-Coburg suffered a heavy defeat in local elections as voters are disappointed with its failure to bring quick affluence. Finance Minister Milen Velchev told a news conference the government decided to lower the corporate tax to 19.5 percent in 2004, from an initially planned 22 percent, and below the current tax of 23.5 percent. Saxe-Coburg said in an address to the nation later yesterday that the tax cut was targeted to encourage growth and crack down on the gray economy. «As a result of today’s decision, the real economy will gain 150 million levs ($90 million). These funds will create jobs, modernize production and raise companies’ competitiveness,» Saxe-Coburg said. Velchev said the government afforded the bigger tax cut because of low world interest rates and a weak dollar, which had reduced foreign debt payments. Saxe-Coburg’s government sustained robust growth of 4.8 percent last year and reduced unemployment to 13 percent from 19 percent in 2001 but impoverished Bulgarians say they have failed to feel the macro successes in their pockets so far. Despite fixing entry dates with the EU and NATO, the government’s popularity has more than halved at home. The 2004 draft budget also envisages a rise in the state pensions ceiling to 420 levs from some 200 levs now. To compensate for the pension increase, the government decided to leave income taxes intact next year and raise excise duties on cigarettes and fuel, Velchev said. The budget, which has yet to be approved by Parliament, has not received the green light from Bulgaria’s main economic mentor, the International Monetary Fund. Despite the IMF opposition, the government stuck to its plan to raise next year’s budget deficit to 0.7 percent of gross domestic product, from an initially pledged 0.5 percent. Velchev has said the fiscal loosening aimed to spur growth, which was unable to reach its full potential because of a slower-than-expected recovery in the EU, Bulgaria’s main trading partner. He added that next year’s budget gap of 284 million levs ($170.8 million) would be fully covered by privatization revenue, expected to reach at least 550 million levs.