The government is making up for its fear of reforming the state administration with higher taxes and social security contributions, says financial analyst Assoc. Prof. Shterio Nozharov of the University of National and World Economy (UNWE). He says the measures against the deficit will hit private investment and push people back into the grey economy.

The measures are advance payments of corporate tax, tax valuations of property, a household waste fee and a tax on meal vouchers. The government sent its budget plan to Brussels and made it public, as the regulation requires. Bulgaria is in an excessive deficit procedure.

Wages, social payments and running costs take between 87% and 93% of the cash resource of the consolidated fiscal programme, Nozharov said. These current costs consistently exceed revenue. Even if the state stopped all capital spending, the budget would still run a deficit, and not a small one, so capital spending can no longer act as a buffer against it.

Without the measures, the deficit could reach 7.3%, the budget plan shows (p. 35, table 6). The analyst says the figure points to deep distortions in the structure of revenue and spending. In his view, the only way to balance the budget is a more precisely targeted and higher burden of taxes and contributions, and all the changes aim to improve collection. Collection is about 9% better than last year, but it cannot cover the sharp rise in spending, he said.

Under the advance corporate tax, firms must pay 90% of what they owe for the year up front. In effect, businesses lend money to the state at zero interest instead of replacing worn-out equipment, introducing new technology and hiring more skilled staff, the analyst explained.

He says the measure will cut private investment even further. It stands at 17% of GDP, while normal growth needs 23%. The 3% growth, which Nozharov calls imaginary, comes mainly from EU funds. He puts real growth at 0.5%.

Firms have large areas of land, so the property valuations and the waste fee could sharply raise their local taxes. The state has put off the "polluter pays" principle for years, even though EU deadlines have passed, and the analyst calls the current system unfair.

The analyst is not sure whether taxing meal vouchers is fair to workers. They have been one of the few ways to bring the grey economy into the open. Even a tax only on the difference from the current arrangement will push workers and employers back towards it, Nozharov says.

For now, the government is not giving way on VAT rates, although some sectors want lower ones. The analyst says it is right to hold back.

The proposals still have to go through parliament. Nozharov hopes that when MPs vote, they will hear all the affected groups and look objectively at the flaws in the proposals.