Bulgaria 2026: Workers Could Lose Nearly Half Their Income to the State Under Planned Fiscal Changes

In 2025, the overall tax and insurance load on labor in Bulgaria reached roughly 42 percent of an employee’s gross salary. This figure combines close to 32 percent in social security contributions, formally split between worker and employer, though effectively borne by the employer, together with the 10 percent flat income tax.

Government plans anticipate this burden rising further in the coming years. According to the draft budget for 2026, prepared by the ruling majority, the combined weight on labor is expected to climb to 44 percent next year and reach 46 percent in 2027. The scheduled increase of social security contributions by two percentage points is the main driver of this projected rise. These conclusions appear in an analysis by the Institute for Market Economics, which reviewed the budget documents ahead of their final approval.

The IME notes that expenditures at the National Health Insurance Fund are set to reach 11 billion leva in 2026, about 5.6 billion euros, and even this level will not be sufficient. The planned increase in the health insurance contribution from 8 to 10 percent will also fall short of addressing structural revenue shortages. The actuarial report of the National Social Security Institute for 2024 indicates that the pension system would require a contribution level of 37.5 percent to close its deficit, while the actual rate remains at 16.3 percent.

The NSSI links this imbalance to the growing “generosity” of the pension model, which no longer corresponds to demographic trends or to the number of active insured persons. The analysis warns that if policymakers attempt to solve the gap solely by raising contributions, the total insurance burden would need to increase to 45.5 percent. Once the 10 percent income tax is added, more than half of workers’ earnings would effectively be directed to the state. Economists caution that this would fuel the informal economy and create risks of layoffs. Bulgaria has previously experienced periods of similarly heavy fiscal pressure, which were followed by stagnation, widening budget deficits and high unemployment.

According to the NSSI, the sustainable path forward lies elsewhere: scaling back the system’s generosity by tightening early and pre-retirement options; encouraging higher employment so that more people contribute; and supporting income growth through investment rather than through tax hikes. None of these measures, however, are reflected in the government’s draft for Budget 2026.

The IME stresses that raising social security contributions will weigh on economic growth not only in the short term but also with prolonged effects on the living standards of Bulgarian households. On this basis, the institute recently presented an alternative budget proposal. Its first recommended step is to introduce a legal ceiling on national expenditures, limiting them to 38 percent of GDP through amendments to the Public Finance Act. Such a rule, the IME argues, would ensure a balanced budget without raising taxes and would curtail the accumulation of new debt.

A second proposed anchor is to cap public debt at no more than 30 percent of GDP. In the institute’s assessment, this framework would halt the trend toward increasing indebtedness and protect Bulgaria from drifting toward a situation similar to that of Romania, where the debt ratio has already reached around 60 percent.