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Lower tax rates and more efficient public expenses
submited on 10.05.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 10.05.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The long holidays, which decelerated the pace of economic and political life in the country, allowed for the government to avoid inconvenient questions, related to the debate for future tax rate reduction. These questions are especially urgent when:
- The budget surplus, including the relations with the EU reached BGN 1664 million for the three months of 2008. In fact this is close to the target value of the surplus for the entire year according to the planned by the Ministry of Finance.
- Even excluding the transfer from the EU budget, the revenues from local sources (i.e. from taxpayers in the Bulgarian economy) grow at 22% for the quarter. In the same time, irrespective of the increasing expenses in some spheres the total public expenses grow at rate around the planned – 8.5%.
- All taxes’ revenues grow at rapid rates.
The reasons for what is happening are mainly two. Firstly, expectations of reducing grey economy are coming true as a result of the reduced direct tax burden. This is happening both statically, i.e. for already active market participants, but also dynamically – due to the replacement of the “grey” players, which have had competitive advantage in not paying taxes, by registered players, which under new lower rates can act according to the rules and profit.
Secondly, the economic growth in Bulgaria is dependent on the tax environment. This is why more favorable tax rates not just increase revenues, but also make possible new investments, which otherwise would not be realized. If tax reforms continue, the accumulation of capital will grow, and therefore – economic activity. If they cease or we go in the opposite direction, investors will react accordingly, moving in the medium term to other economies.
It seems that this is difficult to understand not only by most politicians, but also by syndicates and formal organizations of employers and business sectors. In large fiscal policy arguments are dominated by contemplations on effects on already active players – i.e. established business and hired employees – without including the potential on future and yet not made investments or generated working places.
Although the revenue accumulation provides considerable comfort to the government to reduce some taxes without even cutting expenses, the public sector efficiency continues to be main problem before the competitiveness of the Bulgarian economy. Hence, regardless of the public pressure toward reducing the tax burden reforms in the expenses must be supported.
We must not forget that despite the yellow cards of the EU with the respect to spending EU funds, the government responsibility before the community is not exhausted with the transparent management of BGN 1.2 billion, and must include all BGN 27 billion (or more), which according to the budget will be spent in 2008.
- The budget surplus, including the relations with the EU reached BGN 1664 million for the three months of 2008. In fact this is close to the target value of the surplus for the entire year according to the planned by the Ministry of Finance.
- Even excluding the transfer from the EU budget, the revenues from local sources (i.e. from taxpayers in the Bulgarian economy) grow at 22% for the quarter. In the same time, irrespective of the increasing expenses in some spheres the total public expenses grow at rate around the planned – 8.5%.
- All taxes’ revenues grow at rapid rates.
The reasons for what is happening are mainly two. Firstly, expectations of reducing grey economy are coming true as a result of the reduced direct tax burden. This is happening both statically, i.e. for already active market participants, but also dynamically – due to the replacement of the “grey” players, which have had competitive advantage in not paying taxes, by registered players, which under new lower rates can act according to the rules and profit.
Secondly, the economic growth in Bulgaria is dependent on the tax environment. This is why more favorable tax rates not just increase revenues, but also make possible new investments, which otherwise would not be realized. If tax reforms continue, the accumulation of capital will grow, and therefore – economic activity. If they cease or we go in the opposite direction, investors will react accordingly, moving in the medium term to other economies.
It seems that this is difficult to understand not only by most politicians, but also by syndicates and formal organizations of employers and business sectors. In large fiscal policy arguments are dominated by contemplations on effects on already active players – i.e. established business and hired employees – without including the potential on future and yet not made investments or generated working places.
Although the revenue accumulation provides considerable comfort to the government to reduce some taxes without even cutting expenses, the public sector efficiency continues to be main problem before the competitiveness of the Bulgarian economy. Hence, regardless of the public pressure toward reducing the tax burden reforms in the expenses must be supported.
We must not forget that despite the yellow cards of the EU with the respect to spending EU funds, the government responsibility before the community is not exhausted with the transparent management of BGN 1.2 billion, and must include all BGN 27 billion (or more), which according to the budget will be spent in 2008.
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