MOTIVES FOR RETURNING FOR FURTHER DEBATE IN THE NATIONAL ASSEMBLY THE PROVISIONS OF THE LAW AMENDING THE STATE BUDGET ACT OF THE REPUBLIC OF BULGARIA FOR 2013, ADOPTED BY THE NATIONAL ASSEMBLY ON AUGUST 1ST, 2013

Esteemed members of the National Assembly,

I respect and consider normal that each new government strives to implement the policies that led to it being elected, including the revision of the State budget. The revision of the budget is not occurring for the first time and does not only happen in Bulgaria. It is the normal practice. I do not dispute the need for the State to take additional social measures to assist the most vulnerable groups of our society. In times of crisis, the provision of social support to its citizens is a fundamental responsibility of the State. I also support the steps to improve the business environment and promote economic activity. I am confident that the timely payment of the obligations of the state is a prerequisite for maintaining normal liquidity in the economy. When financial obligations have been made in compliance with the financial discipline and within the budgets of these institutions, or are justified by exceptional needs, the State has no reason for overdue payments on them.

However, amendments to the state budget should not undermine the macroeconomic stability and long-term prospects for economic development. It is the obligation of the government to prepare a revised budget in a transparent and open dialogue with representatives of business, trade unions, local authorities and the public. This obligation was not met and a dialogue did not take place. If the purpose of this revision is the rightful payment of arrears of the state, particularly to small and medium businesses, the specific mechanisms should be clearly enshrined and guaranteed in the budget. It ought to be taken into account that many of these debts are owed by municipalities and specifically to small and medium enterprises, and this has not been provided for.

The arguments for repayment of obligations to business are based on data that is not available to the public. The government does not publish regular data (monthly data) in respect of the amount of outstanding obligations of the various ministries or the amount of non-refunded tax credit (non-recovered VAT). To be able to hold a discussion on the revised budget and for the public to assess the accuracy and depth of the arguments used for the update, there must be access to these data.

In respect of the revenue component, there is no clear and reasoned analysis of the anticipated development of tax revenue. Estimates by revenue agencies have been used, without giving details of the analysis serving as a foundation for their estimates, to what extent the expected lower revenue is a result of the development of economic activity, and to what extent to poor tax collection rates due to the ineffectiveness of the revenue administration

I have stated repeatedly that I do not accept the approach of working in the dark and even the most important legislation being adopted in the absence of transparency and public discussion.

The proposed budget revision provides for a further increase in the budget deficit. I accept the idea that in certain situations such a step can be justified as a temporary measure but only if coupled with policies designed to improve the competitiveness of the economy and investment in areas that will create jobs and generate future growth. The absence of such policies means that the increase in the budget deficit finances current expenditures. Debt financing of a growing deficit is very dangerous path that, if followed by a country, makes reversal of such policy very painful. The increase in the deficit and debt is therefore irresponsible both for us and for future generations.

In this budget revision I expected to see clear steps for implementing the government's declared policy of combating the shadow economy and smuggling and to increase revenue collection. I expected more ambition in terms of revenue and greater transparency in expenditure, cutting red tape and streamlining the administration, rather than creating more bureaucracy and new government structures. Unfortunately I do not see how this revision could support strong policies and reforms for employment, competitiveness and growth. I also believe that both the budget and any amendments to it must be prepared in a calm environment and with the help of the public consultation. Moreover that the procedure for preparing next year’s budget will begin shortly.

These considerations give me a reason to return for reconsideration the provisions of the Law amending the State Budget Act of the Republic of Bulgaria for 2013

1. I return for further consideration § 1 on Art. 1, para. 1, Section I. "Revenues" Item 1 "Tax revenues" of the Law amending the State Budget Act of the Republic of Bulgaria for 2013 with the following motives:

The deterioration of macroeconomic indicators for the first half of this year is a fact. Undoubtedly, besides the economic reasons this was aggravated by the political crisis that continued through much of the year and generated instability in the work of the revenue administration. However, the budget performance at present does not show significant and irreversible deviations from the estimates for 2013. Decreasing revenue by amending the state budget is a last resort which should be undertaken only when the government has exhausted all opportunities to improve collection.

I can not support an automatic reduction in revenues without an attempt to improve tax collection, optimize the work of revenue agencies to improve their efficiency and to overcome the administrative pressure on business. The current revised budget is only lowering the standards of collection and gives a bad signal that at the first signs of trouble, we are willing to resort only to the easiest solution. The stated will of the new government to improve revenue collection, including through measures for combating shadow economy, reducing smuggling and optimizing revenue administrations does not correspond in the least with the principle set out in the current revision of the revenue component. On the contrary, the reduction in tax revenues and compensating for the slowdown only by raising the debt could further demotivate revenue administration and reflect badly on their work.

2. I return for reconsideration § 1 on Art. 1, paragraph 2, section "II. Expenditure, "Item 4" Reserve for Contingency" of the Law amending the State Budget Act of the Republic of Bulgaria for 2013 with the following motives:

I strongly support policies that intend to provide additional funds for social assistance to alleviate the burden on consumers of electricity from renewable energy sources and payment of obligations to the business. The rule of law requires spending of public authorities to be established by law. In the adopted Law amending the State Budget Act of the Republic of Bulgaria for 2013, such costs are not determined. The only increase is in "Reserve for Contingency." This reserve under § 4 of the Transitional and Final Provisions of the State Budget Act of the Republic of Bulgaria for 2013 is utilized by the Council of Ministers.

This law does not guarantee that the adopted increase in the expenditure component of the budget will be used specifically for these purposes. Moreover, this approach to increase the reserve for unforeseen and urgent expenditure authorizes the Council of Ministers to dispose of these funds without sanction by the National Assembly and without the need to comply with the motives stated in the public domain and in plenary sessions. There must be a clear and direct relationship between the motives and the specific budget items.

I believe that the will of the MPs to support policies for providing additional funds for social welfare and repayment to business should find a place in the texts of the Law amending the State Budget Act of the Republic of Bulgaria for 2013- namely, the new expenditures to be allocated to the respective budget items.

An additional argument to return for reconsideration this component of the budget is that I do not share the approach for automatic increase of expenditure without seeking opportunities to optimize them and improve their efficiency. Many sectors are still unreformed despite their huge budgets. I do not see decisive actions in this direction. There is a pressing need to significantly increase the effectiveness of money spent with responsibility to Bulgarian taxpayers, rather than the desire of the administration to always spend more. Year after year of pouring more and more public money into unreformed sectors creates a vicious circle out of which we can only come with the help of reforms.

3. I return for reconsideration § 2 item 3 (which amends the text of § 13 para. 1 of the Transitional and Final Provisions of the State Budget Act of the Republic of Bulgaria for 2013) and 4 (which creates new § 14a) of the Law amending the State Budget Act of the Republic of Bulgaria for 2013 with the following motives:

The revision of the State Budget Act of the Republic of Bulgaria for 2013 should have been accompanied by an assessment of the impact on the country's fiscal targets in the medium term and the achievement of the set medium term target. Transparency of the medium-term objectives and funding structure of the planned budget deficit contributes to the necessary predictability of the environment and affects the investment climate, which is an important factor for sustainable economic development of the State.

The revised budget intends to provide additional government debt of up to one billion Lev. This debt, however, once again is not aimed at supporting an active policy to increase competitiveness, growth and improving the business environment. Moreover, questions about its necessity, purpose, impact on the economy, society and future generations, remain without definite answers. The new loan is intended to provide a buffer, which is not an active policy. The motives for the law do not incorporate an analysis of what is the optimal level of fiscal reserves, how this level is calculated and to what extent the country needs the additional buffers to be formed, as well as what is their acceptable cost. Despite the fact that these buffer reserves will cost Bulgarian taxpayers additional interest payments, there is no information which policies will be financed and how they will be implemented. The Act contains no safeguards for the appropriate, transparent and publicly controlled spending of the loan.

Esteemed members of the National Assembly

With a view of the above motives and driven by the desire to provide better conditions of life and work for Bulgarian citizens, improve the business climate and create opportunities for economic growth and in compliance with the provisions of Art. 101, para. 1 of the Constitution of the Republic of Bulgaria, I return to the National Assembly for reconsideration the provisions of § 1 on Art. 1, para. 1, Section I. "Revenues" Item 1 "Tax revenues", § 1 on Art. 1, para. 2 Section "II. Expenditure "Item 4" Reserve for Contingency ", § 2 item 3 (which amends the text of § 13 para. 1 of the Transitional and Final Provisions of the State Budget Act of the Republic of Bulgaria for 2013.) and 4 (which creates a new § 14a) of the Law Amending the State Budget Act of the Republic of Bulgaria for 2013.

                    
ROSEN PLEVNELIEV
                PRESIDENT OF THE REPUBLIC OF BULGARIA