Bulgaria's FinMin Pledges Two VAT Reductions by 2013

Bulgaria's Finance Minister Djankov (right) says keeping the budget deficit under 3% is the major 2011 challenge for the Borisov government. Photo by BGNES

The Bulgarian government is the only one in Europe that reduced the tax burden in a difficult crisis year such as 2010, Finance Minister Simeon Djankov said.

"There is no other government in Europe that did what we did. 2010 was a year of financial stability for Bulgaria. We did not raise the taxes, and did not decrease the pensions. There will be a reduction of the VAT rather soon in 2011. By the end of our term, there will be a second decrease of the value-added tax," Djankov promised on Saturday.

Bulgaria's VAT is 20% at present; this is not the first time Djankov has promised a reduction of the value-added tax. As early as the first months of the Borisov government in 2009 he spoke about reducing the VAT down to 18% and then possibly to 16%.

Bulgaria at present has the lowest tax burden in Europe with flat corporate and income tax rates of 10% each.

He defined the major goal of the Borisov government as managing to keep the budget deficit below the 3% threshold in 2011, as required by the EU Stability and Growth Pact.

In early December, the Bulgarian Parliament approved the 2011 state budget, which provides for an economic growth of 3.6%, and a budget deficit of about 2.75% of the GDP, barely below the 3% threshold of the EU Stability and Growth Pact, which is also required for ERM II and euro zone accession.

Final Eurostat data showed that Bulgaria ended 2009 with a deficit of 4.7%, while the 2010 projections are for a deficit of 4.8%. The efforts of the Bulgarian government to bring down the deficit are also the result of the EU setting Bulgaria under the so called excessive deficit procedure - for EU countries with deficits above 3%.

"I am not thinking of buying a one-way ticket. 2010 was hard but 2011 will be better for both the Bulgarians, and the government so I am looking forward to 2011 with great optimism. We have the chance to wipe out communism and all its bad aspects from Bulgaria once and for all," the Finance Minister said as quoted by Darik Radio.

Djankov admitted to two failures for him and the government in 2010 – in the reforms of healthcare and the state administration.

"The one thing is that I wish the healthcare reform had started at the beginning of 2010. There was a delay over there. The second, which is my fault, is that at the beginning of our term we should have been more active reforming the state administration. I am responsible for that because I underestimated the huge power of the bureaucracy," the Finance Minister said while explaining he believes the Bulgarian civil servants are underpaid.

He pointed out the government had invested great efforts in the health care sector despite the failure to achieve outright solutions.

"We underestimated how difficult this reform is, and how many lobby groups are interested in its failure. For example, it turned out that invasive surgery got a lot more money than pediatricians did. We managed to change things so that future mothers should know that we increased by 20% the funding of all kinds of medical care for children," said the Finance Minister.

He made it clear he saw the retirement reform as a success because it had provided a plan for 25 years ahead. Djankov also boasted what he described as better communication with the European Commission and the EU as a whole.

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