Bulgarian public finances are entering a period of lasting structural imbalance between revenue and expenditure. Solving the problem requires implementing reforms and a thorough and targeted public debate. This is the leading conclusion of Plamen Nenov, author of the latest publication of the Council for Economic Analysеs (CEA) under the Council of Ministers titled "Bulgarian Fiscal Policy at a Crossroads".
The growing structural imbalance between public revenues and expenditures in Bulgaria is a focus of the document. Nenov's analysis shows that revenues as a share of gross domestic product (GDP) have plateaued due to limited opportunities to broaden the tax base. At the same time, spending on pensions and public sector wages has been growing steadily.
This trend is not temporary, but is the result of long-term factors such as an aging population, as well as the process of income convergence towards EU average levels, which increases labour costs in the provision of public services such as education and healthcare.
The author defends the view that it is necessary to correct this structural imbalance in order to prevent future adverse processes of uncontrolled fiscal consolidation, which could cause lasting damage to both the country's economic development and the most vulnerable groups in society.
Nenov suggests using a combination of four main tools in seeking a solution to the problem, mostly representing reforms. First and foremost, is a reform of the tax and social security system, including changes in tax rates and harmonization with other EU countries, complemented by enhanced measures to comply with tax legislation. Second is reforms in the size of social transfers, including changes in the income replacement rate of public pensions and the retirement age. Third is the reform in the scope of public services provided, such as education, healthcare, and public order. Finally, Nenov highlights the need for controlled use of additional government debt, aimed at reducing the effects of economic shocks, as well as at financing public investments.