Bulgarian PM: No Corporate Tax Hikes over Euro-Plus-Pact

Politics » BULGARIA IN EU | May 4, 2011, Wednesday // 15:49
Bulgaria: Bulgarian PM: No Corporate Tax Hikes over Euro-Plus-Pact PM Borisov with his Finance Minister Simeon Djankov (left) during Wednesday's Cabinet meeting; Borisov and Djankov have defended Bulgaria's accession to the euro-plus-pact. Photo by BGNES

Bulgaria will not be assuming guarantees for others' debts and will not be obliged to raise its corporate tax once it joins the "Euro-Plus-Pact," according to Prime Minister Boyko Borisov.

Speaking in Parliament Wednesday, Borisov sought to assuage fears that Bulgaria's accession to the so called Euro Pact will force it to change some of its fiscal policies which constitute its few competitive advantages within the European Union.

The "Euro-Plus-Pact" - initially known as a euro zone competitiveness pact or just an euro pact, proposed in February 2011 by German Chancellor Angela Merkel and French President Nicolas Sarkozy.

In addition to the 17 Euro Area countries, six non-euro-using states - Denmark, Poland, Romania, Bulgaria, Latvia and Lithuania - have opted to join the Euro-Plus-Pact, with the UK, Sweden, Hungary, and the Czech Republic staying out, at least at the current stage of its formation.

At first, the "Pact for the Euro", another one of its names, elicited a strong negative reaction from European states both within and outside the euro zone when it was first unveiled by Merkel and Sarkozy last month. Since then it has been watered down to include a set of non-binding targets for harmonizing policy in a range of areas - from labor markets and retirement ages to debt and corporate taxes.

Opposition politicians and leading economists in Bulgaria have slammed the Borisov government's decision to join saying arguing that Bulgaria will have to guarantee the bailout aid for other richer EU countries, that it will be forced to increase it corporate tax rate, currently a flat 10%, the lowest in the European Union, and that it will have to freeze the growth of salaries.

"It is crucial to know that Bulgaria is not assuming guarantees for others' debts. For us as the poorest country in the EU the likelihood for crediting the euro pact membership of another state is only theoretical," Borisov told the MPs on Wednesday while also reminding that at the beginning the Cabinet was split with Finance Minister Simeon Djankov initially being against Bulgaria's participation in the euro pact.

The PM said 23 out of 27 EU states have joined in with the exception of the UK, Sweden, Hungary, and the Czech Republic.

He stressed that Bulgaria's contribution to the Euro-Plus-Pact will be clear after it joins the the euro zone, and that the Pact itself does not provide for freezing salaries.

"The salaries will be determined by how much we work and produce. The taxes remain out own decision. The Commission's draft on the euro pact says that the introduction of a Common Consolidated Corporate Tax Base (CCCTB) will be optional for firms. Nobody is forcing us to increase the flat 10% corporate tax," Borisov said.

The PM has thus reiterated the formal position of the Finance Ministry that Bulgaria is opposed to the introduction of common EU tax rates - after the recent proposal for the introduction of a Common Consolidated Corporate Tax Base (CCCTB), a move towards harmonized corporate tax in the EU. At present, Bulgaria has the lowest tax burden in the entire EU, and the lowest EU corporate tax rate - a flat 10% tax; this proves one of its competitive advantages in its quest to attract badly need foreign direct investment as it remains the poorest country in the 27-member bloc.

The Prime Minister further stressed that countries whose GDP is below 75% of the EU average will have a transition period of up to 12 years after they join the euro zone before assuming full responsibilities under the euro pact.

"We will be adopting measures that we need to adopt anyway in order to boost competitiveness and financial stability and to get away from being the poorest and last in the EU. Our contribution of about EUR 300 M will be made after we join the euro zone and become part of the European Stability Mechanism," Borisov stated.

After the Euro-Plus-Pact was unveiled, Germany has stressed that non-euro members will not be excluded from annual discussions on economic convergence that are foreseen in the pact if they elect to become a part of it.

The most virulent criticism against the Euro-Plus-Pact has been that it literally creates a two-speed Europe - a Europe with a stronger integration around the Franco-German core, and a more estranged periphery. Thus, it would break the taboo of institutionalizing regular meetings of the euro zone leaders, while currently all EU states take part in the major euro zone discussions.

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Tags: euro, France, Germany, Prime Minister, Boyko Borisov, EU, Euro Area, euro zone, euro-plus-pact, Euro Pact, European Council, Common Consolidated Corporate Tax Base, CCCTB

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