Bulgaria Govt Raises Budget Deficit Target to 3.7%/GDP, Amends VAT Law
Bulgaria’s government on Tuesday adopted a draft budget update, raising the deficit target to up to 3.7% of projected 2014 GDP to provide for increased spending and lower-than-planned revenue.
The centre-right minority coalition cabinet, which took office last week, also withdrew the budget update drafted by the caretaker government led by Georgi Bliznashki that had projected a budget gap equivalent to 4.0% of GDP.
The previous Socialist-led government that resigned in July after about a year in office, had projected a deficit of BGN 1.472B equivalent to 1.8% of projected GDP in the 2014 budget bill.
Finance Minister Vladislav Goranov told reporters after Tuesday's cabinet meeting that the shortfall projected in the budget revision could lead the European Commission to launch an excessive deficit infringement procedure against Bulgaria.
The government is fully aware of that risk but it will explain to the Commission what the reasons for increasing the budget gap had been and will try to bring the deficit below the ceiling of 3.0% of GDP allowed under EU rules as soon as possible, Goranov said.
According to preliminary figures released by the Finance Ministry on Monday, Bulgaria’s consolidated budget deficit for the first 10 months of the year totalled BGN 1.775B equivalent to 2.2% of projected 2014 GDP.
Revenue projections in the 2014 budget bill made by Oresharski’s government have proved overly optimistic, as expected, Goranov said. Full-year budget revenue is expected to be BGN 1.06B short of target, equivalent to 1.3% of projected GDP.
The minister also warned a lower deficit would cause huge delays in payment to businesses.
In view of increased deficit projections the government plans to take out new debt worth up to BGN 4.5B by the end of the year. The planned new debt financing includes providing a loan to the Bulgarian Deposit Insurance Fund and liquidity support to banks in the amount of BGN 2.9B.
Increased government borrowing will require raising Bulgaria’s debt ceiling to BGN 22.5B as of end-2014 equivalent to 28.4% of projected GDP, according to Finance Ministry estimates.
The proposed budget update has to be approved by Bulgaria's parliament to take effect.
During his press conference following the first Council of Ministers' session, Goranov also revealed amendments to the Value Added Tax Act would be tabled.
He said the new bill envisaged that excise on tobacco products should go up to reach EUR 90 per 1000 pcs until 2018, with the first hike due in 2016.
VAT revenues are expected to be BGN 670 M less than previous estimates for 2014. There will be a shortfall of BGN 318 M in excise incomes and BGN 79 M in revenues from corporate tax, Goranov warned.
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