Zero VAT on bread, pensions increase and fuel reliefs among the Cabinet’s anti-inflationary measures

Zero VAT on bread, an update of pensions by nearly 20%, higher tax relief for families with children and discounts on fuel, including petrol and diesel - these are just some of the measures in the anti-crisis package adopted at yesterday's coalition council, the government information service said on May 18.

"We are in front of you as a government and as a coalition. The measures are based on our common views that when it comes to the Bulgarians' standard of living and containing the crisis, we are united. The measures represent an opportunity to support the most vulnerable, young families with children and a focus on fuel and electricity," Prime Minister Kiril Petkov said.

The Prime Minister commented on economists' criticism that the proposed measures would increase inflation.

"Inflation is not Bulgarian, but global. When inflation is brought in from outside, the state should help where it can to reduce fuel prices for end users, and reduce the price rise of some energy sources. That is where the state should help, because that will affect overall inflation. We are also focusing an unprecedented package to support the most vulnerable so that their income growth outpaces inflation."

Deputy Prime Minister Kornelia Ninova said the measures had three objectives - the most vulnerable people in the crises - young families with children, pensioners and the working poor; saving the economy and solutions aimed at helping all citizens - such as 0% VAT on bread.

"The most important for us is to turn this plan into reality in the coming weeks and to make this support of the state for the economy and this care reach them as soon as possible," Ninova said.

Stanislav Balabanov of “There is Such a People” described the package of measures as balanced and as a "practical solution".

"People are the most important at a time like this - Bulgarian citizens, because they are our employer. We have tried our best to strike a balance on the package, which should quickly reach the citizens who need it the most because the previous government left us a heavy legacy," Balabanov said.

Vladislav Panev of Democratic Bulgaria said the measures guarantee the financial stability of the state and will not generate additional inflation.

"The measures are correctly targeted - they increase the incomes of pensioners and the most vulnerable and exclude those who do not need them - such as the fact that premium fuels will not be subsidised by 25 st. per litre," Panev said.

Here is what the package of measures envisages:

• Pension increases: pensions will be updated on July 1 by an average of 20% instead of the current 6.1%. This includes a fixed increase of all pensions by 60 BGN and an additional percentage increase. Under the so-called "Swiss rule", the pensions of 770 000 pensioners will be recalculated from 1 October, with each pension from 2008 being recalculated at 100% of the increase in average insurance income or 100% inflation, depending on whichever is more favourable and whichever is the higher pension for the individual pensioner. Thus, in a year and a half, the minimum pension will increase by 55% and become BGN 467, the Council of Ministers said. The calculations also show that over the previous 12 years, pensions have risen by an average of around 100 BGN, while now within just a year the increase will be 167 BGN.
• Compensation for high fuel prices: all members of the public will be able to benefit from a discount of 25 cents per litre on petrol 95 and diesel, methane and propane-butane until the end of the year. There is no limit on the amount of fuel refilled, but the compensation will not apply to premium fuels enriched with additives.
• Differentiated VAT: VAT on bread will be reduced to 0% for one year and VAT on wine and beer will be returned to 20% for the same period. VAT on heating and hot water to be 9% for one year. VAT on natural gas for end users/household use will also be reduced to 9% for a period of 1 year. The VAT rate on books will continue to be 9%.
  No excise duty on certain energy products: electricity, natural gas, methane will be excise exempted.
• Support for families with children: as a long-term measure, it is planned to increase the amount of the tax allowance for children from BGN 4 500 to BGN 6 000 per year, with the possibility to claim it every three months during the year.
  Increasing the threshold for compulsory registration under the VAT Act: from BGN 50 000 to BGN 100 000.
• Taxation of excess electricity profits: the aim is to compensate non-domestic consumers.
• Electronic vouchers for employees: their total amount will be increased to BGN 1,2 billion.
• Reduction of interest to 8% for late payments to the state, municipalities, utilities, etc.Recommendation to the energy regulator EWRC for two rates for electricity, water, heating and gas based on consumption per household, with the aim of introducing a reduced tariff for less consumption.

Most of the measures will be settled in the forthcoming mid-year budget update, with different timelines for entry into force and implementation accordingly.

The necessary legislative changes will also be drafted, the Council of Ministers said.