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Tax changes for 2006 proposed by the Ministry of Finance.
submited on 03.10.2005 in category Political stability | Fiscal affairs | Monetary policy | Macroeconomic developments
submited on 03.10.2005 in category Political stability | Fiscal affairs | Monetary policy | Macroeconomic developments
From a political point of view the new governments seems to have decided to stick with the status quo of fiscal policy. This scenario includes an increase of wage (in public sector) and pension expenditures, combined with modest reduction in investment expenditures and controlled expansion of new public employment. On a macro level this means a fiscal burden of about or above 40% of GDP. At the same time, the socialist party seems to have abandoned its ideas for ‘punitive’ tax hikes and special interest privileges.
The tax reform package introduced by the Ministry of Finance in late September to a great extent follows this political decision. The explanation of the modest changes includes the agreement with the IMF, EU accession commitments and fiscal burden of the summer floods.
At the moment, the government declares the fiscal objective to be tax burden of 40% of GDP and the proposed tax changes are to be in line with this goal. Major changes include:
- reduction of pension insurance tax from 29% to 23% of labor income;
- increase the tax-deductible threshold for personal income tax by about 1/3;
- one-time increase of excise duties on alcohol and cigarettes by the rate previously planned for 2006-2008 and scheduled increase of fuel excise duties;
- adjustment of tax valuation of real estate property by 20%.
If the government were to reach the 40%-to-GDP target in 2006 it would have to cut expenditures (ceteris paribus) by about BGN 1,200 million (or 2.7% of the GDP that is forecasted to exceed BGN 45 billion in 2006). However, according to Industry Watch estimations, the proposed tax changes will only bring about a BGN 360-million reduction in expenditures, or 0.8% of GDP.
The tax reform package introduced by the Ministry of Finance in late September to a great extent follows this political decision. The explanation of the modest changes includes the agreement with the IMF, EU accession commitments and fiscal burden of the summer floods.
At the moment, the government declares the fiscal objective to be tax burden of 40% of GDP and the proposed tax changes are to be in line with this goal. Major changes include:
- reduction of pension insurance tax from 29% to 23% of labor income;
- increase the tax-deductible threshold for personal income tax by about 1/3;
- one-time increase of excise duties on alcohol and cigarettes by the rate previously planned for 2006-2008 and scheduled increase of fuel excise duties;
- adjustment of tax valuation of real estate property by 20%.
If the government were to reach the 40%-to-GDP target in 2006 it would have to cut expenditures (ceteris paribus) by about BGN 1,200 million (or 2.7% of the GDP that is forecasted to exceed BGN 45 billion in 2006). However, according to Industry Watch estimations, the proposed tax changes will only bring about a BGN 360-million reduction in expenditures, or 0.8% of GDP.
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