Bulgaria To Avoid VAT Hike

Determined to consolidate the country’s budget deficit, Bulgaria’s Finance Minister Simeon Djankov has announced plans to implement a 20% cut in public spending, rather than raising the 20% value-added tax (VAT) rate.

Bowing to fierce opposition from trade unions and business leaders, Bulgaria’s government has finally confirmed its intention to cut public spending rather than to press ahead with controversial proposals to raise taxes. Djankov had also recently threatened his resignation if taxes were indeed to be increased as initially proposed.

As a result of the government’s latest decision, the fiscal reserve is expected to decline from BGN6.4bn (USD4.1bn) to BGN4.5bn by the end of 2010. The announcement has provoked outrage from Bulgaria’s Socialist Party, warning that using money from the fiscal reserve will jeopardize the country’s financial stability.

Bulgaria’s budget deficit is expected to reach 2.8% of gross domestic product this year, from 3.9% in 2009, according to a European Commission forecast, while the government is anticipating economic growth of 1% this year.