Fiscal Council Urges Overhaul of Public Sector Pay Policy in Recommendations to Future Caretaker Government

In a report published on Monday, the Fiscal Council calls for a rethinking of the pay policy for public sector staff and highlights the need for reforms in individual sectors and systems. The report is titled "Recommendations for the Fiscal Policy of the Caretaker Government."

The formation of a caretaker government in Bulgaria is expected in the coming days after the regular government of Prime Minister Rosen Zhelyazkov resigned in December.

The Fiscal Council notes that the burden of personnel costs has become too great, reaching 11% of the country’s gross domestic product. The faster growth of incomes compared with inflation stimulates consumption and generates further inflation, while the rise in salaries in the state sector forces employers in the private sector to increase wages as well, the report says.

According to the Fiscal Council, prioritized wage increases in certain sectors create a sense of unfairness and lead to protests for higher pay in other sectors. On the other hand, the declining population requires an optimization of staff across the entire budget sector. The regime for distributing social security contributions between employers and employees should be the same for all workers, the report says.

The Fiscal Council believes that the condition of the individual sectors and systems requires a significant set of reforms, including those that demand a change in the model of functioning.

A good sign would be for the Council of Ministers to begin a preliminary technical analysis (a review of public spending) in several priority areas: administrative reform of budget-funded staff (headcount, structure and functionality of the functional sectors and the individual administrative units), pension reform, healthcare and education, the report says.

The institution points out that the Public Finance Act requires budgets to be in programme format, which would mean that during each respective budget procedure the individual ministries have carried out analyses of the effectiveness and efficiency of the respective budgets and structures, which would support the creation of the necessary information base and reports.

The Fiscal Council notes that earlier recommendations should be taken into account, namely a technical analysis for reducing municipal administration through the merger of municipalities, optimization of the number of police officers, which is rising despite a declining population, and a technical analysis for a reform under which state employees and police officers would pay their own social security contributions, as all other employees do.

The inclusion of social policies (such as indexations and increased capital funding for municipalities) in the extension law on revenue collection and expenditure compromises the principles of budget legislation.

The costs of inflation indexation of wages and capital funding for municipalities should not come at the expense of increased public debt, the Fiscal Council says.