ECONOMY

2007 fiscal surplus for Bulgaria to rise

SOFIA – Bulgaria may overshoot its planned budget surplus by more than expected this year, bringing it above 2 percent of gross domestic product as it aims for a tight fiscal stance, a Finance Ministry official said The Black Sea state, which joined the European Union at the start of January, needs to maintain a lid on spending to prevent its double-digit current account deficit from spiraling out of control. In its 2007 budget, Sofia set a surplus of 0.8 percent of GDP, but also committed to bring it up to at least 2 percent to protect the emerging economy. «We could go over the 2 percent goal… 2.2-2.3 percent of GDP could be possible,» Deputy Finance Minister Georgi Kadiev told Reuters in an interview. Kadiev, who oversees budget revenues for Sofia’s Socialist-led government, said the overshoot would be driven by higher than expected revenues from excise taxes and VAT, as well as higher income from real estate sales by municipalities. «We will have local elections… real estate prices are going up… so mayors want to sell more land,» Kadiev said. The 2007 budget law set revenue at 21.4 billion levs (-10.9 billion), up 9 percent from an expected 19.6 billion last year. And Kadiev said Bulgaria is likely to collect 250-500 million levs or 0.5-1 percent of GDP, on top of it. If revenues come out lower than expected this year, Bulgaria will reach the 2 percent surplus aim by cutting spending if the current account continues to deteriorate, according to the budget law. Bulgaria, a poor country of 7.8 million, has one of the tightest fiscal policies in Europe. But some critics say it lacks budget transparency after years of underestimating revenues which allows the state to spend money with less parliamentary oversight. Kadiev said the 2006 surplus would amount to 3.5-3.7 percent of GDP even though last year’s budget law envisioned a balanced budget. The International Monetary Fund says Bulgaria should run surpluses of at least 2 percent. Bulgaria has pegged its lev to the euro in a currency straitjacket, which curtails central bank operations, leaving fiscal policy as one of the few tools it has to influence the economy. Kadiev also said he expected Bulgaria’s new, 10-percent corporate tax rate, which was cut from 15 percent from this year, to boost revenues by prompting some companies to emerge from the country’s vast gray economy. Further tax cuts are likely. Bulgaria may decrease the social security burden by 3 percentage points to 33.6 percent as of July, if the fiscal situation allows for the cut. Personal taxes may also be cut from 2008.