A Bill amending and supplementing the 2022 Law on the State Budget of the Republic of Bulgaria has been published
A Bill amending and supplementing the 2022 Law on the State Budget of the Republic of Bulgaria has been published on the website of the Ministry of Finance.
The Bill provides for an urgent package of anti-crisis measures aimed at reducing the negative consequences of the rising fuel and energy prices and, respectively, the increasing inflationary pressures on the most affected groups of society and business. The aim is to support Bulgarian citizens and businesses in the context of an unprecedented crisis caused by the military actions in Ukraine and to mitigate the turbulence caused by the high prices of energy and raw materials for the vulnerable groups of society and for the economy of Bulgaria.
The bill provides for different types of support instruments and mechanisms:
- In the field of tax policy:
- excise duty exemption for electricity, liquefied petroleum gas and natural gas – the measure aims to support businesses and citizens consuming electricity, liquefied petroleum gas and natural gas in connection with the unexpected significant energy price hike caused by the increased European and global demand.
- introduction of a reduced VAT rate of 9 % for supplies of district heating – the measure is related to the need to mitigate the impact of high energy prices on households and businesses, in particular on the most vulnerable ones, while avoiding supply disruptions.
- introduction of a reduced VAT rate of 9 % for supplies of natural gas – the measure aims at mitigating the impact of high energy prices on households and businesses, while avoiding supply disruptions.
- introduction of a zero VAT rate for supplies of bread as from 1 July 2022. The introduction of a zero VAT rate for the supply of bread is related to the need to mitigate the impact of high bread prices on households, in particular on the most vulnerable ones, while avoiding supply disruptions.
- reduction of the amount of the statutory interest rate from BIR+ 10 per cent to BIR+ 8 per cent – the measure aims to update the amount of the statutory interest on arrears and to adapt it to the new economic conditions in the country. The proposed measure aims to support and encourage persons who pay statutory interest on arrears to pay their respective liabilities.
- increase of the amount of tax relief for children (from BGN 4 500 to BGN 6 000 per year) and of the tax relief for children with disabilities (from BGN 9 000 to BGN 12 000 per year), as well as introduction of a possibility to use the two tax reliefs in advance (on a quarterly basis) for 2022 – the state will use the proposed measure to provide timely financial incentive in the course of the year related to an increase in the real disposable income of families with minor children, as well as families raising children with disabilities.
- increase of the excise duty on cigarettes, smoking tobacco, cigars and cigarillos, heated tobacco products and hookahs, as well as introduction of an excise duty rate on liquids in e-cigarettes – the introduction of a 4-year excise duty calendar for the increase of excise duty on all product categories of tobacco products will ensure transparency of the process, predictability for businesses and stability for consumers.
- Main measures in terms of expenditures and budgetary relations (transfers) under the state budget:
- indexation of pensions as from July 2022 and implementation of a new mechanism to improve pension adequacy as from October 2022 – a comprehensive package of measures is proposed, aimed at improving the adequacy of pensions paid from the public social security and the Teachers’ Pension Fund. All employment pensions granted by 31 December 2021 will be updated with 10 % as from 1 July 2022. The additional amounts (the so-called “COVID-19 allowances” of BGN 60) and individual compensation amounts paid as of 30 June will be included in the amount of the personal employment pensions after the implementation of the 10 % update. The minimum contributory-service and retirement-age pension will be increased from BGN 370 to BGN 467 and the maximum amount of the one or more pensions received will be increased from BGN 1 500 to BGN 2 000 from July 2022 and additionally to BGN 3 400 from the beginning of October 2022. The amount of the social pension for old age and the amounts of non-employment-related pensions as well as allowances linked to it will be increased from BGN 170 to BGN 247 (45.3 per cent) from 1 July 2022. In July 2022, the average pension of a pensioner (including the UPF) is expected to reach BGN 666, which is an increase by 23.2 % compared to June 2022 (excluding the additional amounts) or by 9.4 % including the additional amounts.
- compensation of natural persons end-users of fuels who use for personal needs petrol and gas oil (diesel), liquefied petroleum gas without additives (LPG or propane-butane) and natural gas (methane) – a programme is planned to be developed for compensation of the natural persons end-users of fuels, which will introduce a mechanism for BGN 0.25/litre compensation for these fuels.
- amendments are proposed for provision of adequate funding for an increase in the wages of the medical personnel employed in health and medical institutions whose heads are second-level spending units to the Minister of Health, as well as in health settings in state and municipal kindergartens and schools, in nurseries and nursery groups at kindergartens.
- provision of support to vulnerable sectors in agriculture in connection with the support expenditures under the temporary state aid framework in support of the economy following Russia’s aggression against Ukraine and under the existing state aid for animal welfare.
- change in the amount of the contribution of the Republic of Bulgaria to the EU budget for 2022.
The net effect to CFP expenditure from these changes amounts to an increase in the annual estimates for 2022 by BGN 1,973.3 million, or 1.3 % of the forecast GDP for the year. These net effects to CFP revenues and expenditures are estimated under the assumption of maintaining the envisaged target for the CFP deficit relative to the forecast GDP for 2022, with the 2022 CFP balance being projected to be negative at 4.1 % of the forecast GDP, respectively.
The changed expectations for the evolution of the macroeconomic environment require corresponding changes in a number of elements of the revenue side of the budget for the current year. On the other hand, the tax policy measures proposed with the anti-crisis package have relevant effects on individual taxes, which is also linked to the revised revenue estimates. Taking these effects into account, the revised estimates are expected to involve a net increase of revenues under the Consolidated Fiscal Programme (CFP) by BGN 1,645.2 million (1.1 % of the forecast GDP); the factors for this increase are mainly the higher than initially planned tax receipts and the expected higher revenues in the part of EU fund accounts. The Recovery and Resilience Plan of the Republic of Bulgaria approved by the Council of the EU included the agreed payment profile in the framework of the technical consultations with the European Commission, where Bulgaria is envisaged to receive higher than planned EU grants in 2022.
The Bill amending and supplementing the 2022 Law on the State Budget of the Republic of Bulgaria also proposes measures related to the provision of additional resources from debt sources in 2022 to service the upcoming sovereign debt repayments, including of the bonds issued on the international financial markets that are maturing in the first quarter of 2023. Entering a new cycle of an increase in the basic interest rates implies an upcoming gradual increase in the governments’ financing cost. In this context, an earlier “going to the market” and pre-financing of maturing debt could save future sovereign debt servicing costs. Following such a strategy, it would be appropriate to provide already in 2022 resources for pre-financing of the upcoming maturities in March 2023 of eurobonds issued on the international financial markets, as well as maturities of government securities issued on the domestic market and repayments of external government loans due next year, which amount to a total of around BGN 3.0 billion. In this connection, the Bill proposes an increase from BGN 7.3 billion to BGN 10.3 billion in the maximum amount of the new government debt which may be assumed in 2022, as well as a change in the limit for the maximum amount of the government debt at the end of 2022 from BGN 35.5 billion to BGN 38.5 billion.