Opinions Clash Ahead of Budget Update Discussion
The 2014 budget update drafted by the caretaker government has stirred a lot of controversy ahead of its discussion with representatives of employers and trade unions.
While deputy Prime Minister Ekaterina Zaharieva has opined that the caretaker cabinet has to act fast and prepare a budget revision ahead of October 5 vote to keep functioning key sectors of the economy and avoid freezing of some social payments, employers claim that the increase in budget deficit and government debt have been ill-considered.
The 2014 budget update draft, which the cabinet is going to discuss with employers and unions on Wednesday starting at 11am, has projected consolidated budget deficit equivalent to 4% of the GDP.
The caretaker government has also proposed to issue up to BGN 4.5 B in new debt and up to BGN 2 B in state guarantees to compensate for lower-than-planned budget revenue.
According to Vasil Velev, board chairman of the Bulgarian Industrial Capital Association (BICA), employers could hardly support a ‘drastic’ increase in public spending in the remainder of the year, considering that economic growth is expected to reach 1.5% this year despite the challenges posed by deflation, the KTB crisis and Ukraine turmoil.
According to Plamen Dimitrov, President of the Confederation of Independent Trade Unions in Bulgaria, the proposed increase in state debt by up to BGN 4.5 B lacked sufficient evidence to win support by unions.
“I see no reason why one should ask for BGN 2.9 B of these BGN 4.5 B to go to supporting the banking system, and here we have our serious reservations,” Dimitrov has said.
He told state radio BNR that troubled Corporate Commercial Bank (KTB) should be rescued at a minimum cost to the taxpayer with the Deposit Insurance Fund playing the main role in the recovery effort.
Zaharieva has defended the raising of budget expenditure, saying the shortage of funds will lead to suspension of payments by the government for parts of projects, funding for which has been frozen by the EU. Failing to increase budget spending now could also lead to lack of funds for road maintenance during winter months as well as suspension of some social payments.
While the next parliament will have the final say on the proposed budget update, the revision has to be prepared now, Zaharieva has said. With the composition of the next parliament far from clear (and even more so the composition of the next cabinet) the caretaker government has to bridge potential fiscal gaps despite calls to avoid channeling funds into unreformed sectors.
In the absence of a functioning parliament the caretaker cabinet can’t push through much needed and long delayed reforms of the pension and healthcare systems. Declining to provide funding for those sectors, however, could mean blocking their functioning.
“What is the solution? To leave people with no medicines, or propose to Parliament to provide them?” Zaharieva has asked.
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