Ministry of Finance to propose 2023 Budget with 3% deficit, tax changes and spending cuts

The Ministry of Finance prepares a draft Budget 2023 with a 3% deficit, tax changes and some spending cuts, caretaker Finance Minister, Rositsa Velkova, told a briefing on March 15.

The draft provides for:

• the introduction of the so-called "excess profit tax" - a one-off solidarity contribution for the second half of 2023
• 100% dividend from all public enterprises after deduction of accounting loss
• increase in tolls and concession fees
• reimbursement of some of the reduced VAT rates. It is envisaged that only bread, flour, baby food and books will remain subject to lower VAT
• an increase in the excise duty on e-cigarettes, this is for so-called vapes, not heated tobacco
• declaration of VAT on registered risk goods
• limiting business trips, representation and living expenses

The implementation of these measures will ensure the implementation of the Swiss rule for indexation of pensions, the payment of increased salaries, as well as salary increases in the public sector, but only to institutions that have not increased salaries in 2022, said Finance Minister Rositsa Velkova.

She commented that theoretically there is a risk of the currency board falling if the country's deficits become excessively high. The government's draft budget aims to limit the deficit to 3%.

"If the deficit is increased above 3% we will not meet the deficit criterion. This means that we have to have higher debt, which in turn means that it is more difficult to raise liquidity on the international capital markets. Because with a higher deficit and losing the prospect of joining the eurozone, international investors would not give the yield that we had, say, on the January issue this year. It is also possible that volume could not be raised. And provided that debt cannot be raised, it is possible to resort to a loan from the International Monetary Fund," Velkova said.

Velkova denied the measures contained specific recommendations to the ministries to cut 20% of their spending. Earlier, publications emerged claiming that caretaker Finance Minister, Rositsa Velkova, had asked all her fellow ministers to cut the ministries’ spending by 20% because of budget risks.

"There was no debate about the 20% because a 90% buffer is being discussed, which means a 10% spending cut and only in the fourth quarter and only with a possible increased balance. This means that if spending is kept to plan, there will be no constraint," she explained.

Finance minister asks ministries to cut spending by 20% over budget risk

The Finance Ministry estimates that the measures will inject more than BGN 6 billion into the budget.

The measures, along with the draft Budget 2023, will be proposed to the 49th National Assembly for discussion, with the final decision resting with Parliament.

The proposed changes to tax laws will be published on 17 March. On 3 April, the Ministry of Finance will present the draft budget for public consultation and will start coordination procedures with the National Council for Tripartite Cooperation. The aim is that the draft Budget 2023 will be considered by the Council of Ministers on 26 April and submitted to the National Assembly within the deadline stipulated in the law.

The concept of the draft Budget 2023 was adopted in the form of a protocol decision at today's meeting of the Council of Ministers.