Bulgaria’s government should not rush into increasing the value-added tax, according to Georgi Prohaski, Chair of the Sofia-based Center for Economic Development.

“There should be no panic because it is not certain whether the economic situation won’t improve in the coming months,” Prohaski told Pro.bg TV.

In his view, 80% of the anti-crisis measures the government is currently deciding upon should have been implemented already as they refer to stimulating economic growth. However, they are not going to lead to a quick alleviation of the situation of the state budget but will only be beneficial in the longer run.

According to the leading Bulgarian economist, those include completing the privatization and concession of state-owned assets, introducing e-government, stimulating the inflow of foreign investment.

However, these measures will not solve the problem with the emerging gap in the 2010 state budget, Prohaski believes.

He advised the government to be cautious with realizing its intention to increase the VAT from 20% to 22% saying that it should first try to exert all of its efforts to cut spending.

“However, if the trend of raising less revenue than is needed for state expenditure continues, then the VAT should be increase – but only for a certain period of time. It is better to increase the VAT by 2% rather than increasing the direct taxes. As soon as the situation stabilizes, the government should reduce the taxes of the small firms and the tax on dividends,” said Prohaski.

The head of the Center for Economic Development thinks that the “luxury tax” that the government wants to introduce with respect to the wealthy will have a “moral effect” but even it manages to raise the BGN 150 M from it as it plans this will still not solve the budget problems with raising state revenue.