Parliament's budget committee today backed two bills at first reading that would replace Bulgaria's national budget controls with the EU's "net primary expenditure" indicator. The bills scrap the automatic correction mechanisms and the medium-term target for the structural deficit. The opposition is against them.

Before the extraordinary session began, Martin Dimitrov and Vladislav Panev of Democratic Bulgaria told reporters in parliament that the ruling parties do not intend to bring the deficit below 3%.

The background: DB says ruling parties do not plan to cut deficit below 3%

The changes to the Fiscal Council and Automatic Correction Mechanisms Act got 14 votes for, 2 against and 4 abstentions. The Public Finance Act changes passed with 12 votes for, 6 against and 3 abstentions.

The first law loses its whole chapter on automatic correction mechanisms. The Fiscal Council is now one of the bodies that can find the deficit has moved away from the medium-term target for the structural deficit. The finance minister must then draw up a correction plan within 2 months. The law sets out the council's rights and duties in planning and monitoring the budget. The changes also bring in the EU requirement for an independent public finance body with advisory and analytical roles.

In the Public Finance Act, the limits tied to the medium-term target are dropped. A single net expenditure indicator takes their place.

The Council of Ministers says that under the EU's Stability and Growth Pact the medium-term budget target is no longer an indicator, and growth in net primary expenditure now leads. The cabinet therefore doubts that national automatic correction mechanisms make sense. The Council of Ministers submitted the Public Finance Act bill. Its reasoning says the aim is to simplify national fiscal rules, as reports by the European Commission and the OECD Committee of Senior Budget Officials recommend. The sponsors say one indicator makes planning and monitoring easier than the current mix of complex rules.

Committee chair Konstantin Prodanov (Progressive Bulgaria) said EU monitoring rests on growth in net primary expenditure, and deviations lead to an excessive deficit procedure. If the old mechanisms stay, there will be two parallel regimes: a national one for the structural balance and an EU one for net expenditure. "In certain circumstances these two regimes may clash," Prodanov told BTA.

Panev and Dimitrov called the changes a dangerous precedent and urged Bulgaria to keep its national limits. Dimitrov said the changes loosen budget discipline. He said the current mechanisms should stay, rather than waiting for the European Commission to find problems and impose an excessive deficit procedure. Prodanov replied that countries across Europe follow the same criteria, and called the opposition's claims baseless insinuations.

Asen Vasilev (We Continue the Change) does not think the budget is being loosened. He said Bulgaria should watch its budget with its own mechanisms, not only those of the European Commission. Vladislav Goranov (GERB-SDS) said the definition of net expenditure also covers revenue, so the new rule is stricter than the current ones in the Public Finance Act.

Fiscal Council members Lyubomir Datsov and Desislava Kalcheva gave the body's positive opinion. Datsov said fiscal councils in Europe are more advisers and analysts than watchdogs. The Fiscal Council wants a role in national safeguard clauses.

The opposition objected mostly to two passages in the Public Finance Act. The first says the state budget law will also set nationally funded public investment. The type, scope, terms, criteria and rules for assessing and ranking these projects will be set by a Council of Ministers decree. Dimitrov called the passages disputed, saying they would let spending be put into the budget subjectively by decree. Prodanov replied that the projects will be in the State Budget Act anyway, and MPs will see and discuss them.

The second passage lets the state borrow on international markets when a budget extension law is in force. The limit must cover the principal on current repayments and the cost of the debt, including interest. MP Petkova said the text could be read as permission for extra debt, not just up to the size of annual repayments, as now.

Goranov proposed dropping these passages, because the law's philosophy is different. The current rules ensure that if no budget is agreed, it becomes balanced and debt is frozen, he said. Venko Sabrutev (We Continue the Change) made a similar argument.

The Finance Ministry will edit the debt passages to make their aim clear. Progressive Bulgaria will adopt the amendments between first and second reading.

The committee rejected two bills by Bozhidar Bozhanov (Democratic Bulgaria) and a group of MPs to change the Public Finance Act. One proposed a method for dividing municipal budgets. The other would have required the Finance Ministry to publish budget execution data on a clear schedule.

The session began with second reading of changes to the Public Offering of Securities Act, which the committee passed without debate. The changes bring in an EU directive and expressly allow shares of companies in which one share carries more than one vote to trade on a multilateral trading facility. Owners of such companies raise new capital through new shareholders and keep control in line with their own vision.