Finance Ministry publishes 2023 Budget Bill, deficit set at 3% as promised without raising taxes

The Finance Ministry Tuesday published a 2023 state budget bill and an updated medium-term budget forecast for the 2023-2025 period. The Ministry says that the budget was drafted in keeping with the Maastricht criteria, whereby the government fulfilled one of its main priorities: to prepare a budget for 2023 with a deficit of up to 3% of GDP, without increasing taxes or cutting back social payments.

The macroeconomic forecast of the Finance Ministry foresees a GDP growth of 1.8% in 2023 and a GDP of BGN 184.5 billion. In 2024, GDP growth will accelerate to 3.3% and in 2025 it is expected to be 3.2%.

Inflation is expected to fall to 5.6% at the end of 2023 and to average 8.7% per annum due to a significant reduction in the contributions of the food and energy commodity groups, which are expected to have a slight decline at the end of the year. In 2024, inflation is forecast to continue to slow, reaching 3.2% at the end of the year and 3.8% on average per annum. In 2025, annual average inflation will continue to slow to 2.8%. Energy commodity prices will decline by the end of the forecast horizon.

The deficit is set at 3% in 2023 and 2024. In2025 it will go up to 3.6% due to investment costs under the plan for acquisition of a new type of combat aircraft which were made in 2019 and 2020 but are reported in the year of delivery (2025). That effect will be temporary and will not lead to a lasting worsening of the budget positions. If the effect of this cost is eliminated, the deficit will go down to 2.8% of GDP.

2023 budget revenues show a nominal growth of BGN 9.8 billion compared to the 2022 figure, while expenditures grow by BGN 8.2 billion.

Compared to the budget bill submitted to Parliament by the caretaker government of Galab Donev, the 2023 expenditures have been reduced by a total of BGN 3.6 billion. Planned maintenance expenditures have been reduced by BGN 1.4 billion. Capital expenditures have been revised on the principle that investment activity continues, with projects that have contractors selected and work has started to be implemented as planned, and those that are not expected to start activities and payments by the end of 2023 not included. Thus, the capital programme decreased by BGN 1.9 billion but still reached a record level of BGN 8.2 billion.

In the 2023-2025 period, tax policy will be oriented towards improving revenue collection, minimizing opportunities for tax evasion and avoidance, and reducing the administrative burden and costs for businesses and citizens. In 2023, BGN 4.7 billion more in tax revenue is expected to be collected compared to the 2022 report, including BGN 1.7 billion more from VAT.

In terms of income policy, the budget bill reflects an increase in the minimum wage from January 1, 2023 - from BGN 710 to BGN 780, with the effects of the projected minimum wage for 2024 and 2025 calculated in indicative terms as 50% of the projected average wage in the respective year.