THE DRAFT LAWS ON THE STATE BUDGET OF THE REPUBLIC OF BULGARIA, THE BUDGETS OF THE SOCIAL SECURITY AND THE NATIONAL HEALTH INSURANCE FUND FOR 2021

Subject: The draft laws on the state budget of the Republic of Bulgaria, the budgets of the Social Security and the National Health Insurance Fund for 2021

DEAR LADIES AND GENTLEMEN,

I hereby present the opinion of BIA on the draft laws on the state budget of the Republic of Bulgaria, the budgets of the Social Security and the National Health Insurance Fund for 2021, as follows:

Updated medium-term budget forecast and draft State Budget Act for 2021

1. We object to the adopted general approach in the preparation of the State Budget Act for 2021, the set parameters of the expenditure policies until 2023 and the envisaged significant increase in the relative share of government debt.
2. At the same time, we support the financial commitments and direct costs of tackling the risks associated with the C-19 epidemic and taking the planned measures in the health sector.
3. Funding in a number of policy areas, administered by primary budget managers, reproduces again the formal, irrelevant or unrealistic goal-setting in the performance of common functions and powers, and not the realization of goals, achievements and results, incl. in response to the K-19 crisis, shortening the distance to the EU-28 average, reducing administrative burdens, a minimum stay in the ERM II Exchange Rate Mechanism and joining the Eurozone from the beginning of 2023, creating conditions for implementation EU long-term goals and national commitments in climate policy and the digital transition, and other key national priorities. For example, the goals in the field of energy policy reproduce the commitments included in the National Climate-Energy Plan until 2027, which was sharply criticized by the EC on 14.10.2020, which requires the preparation of a new version of the plan. [1]
4. We propose again amendments to the Public Finance Act to regulate standardized codification of policy areas, objectives, budget programs, projects and measures. In this way, the society and the social partners will be able to assess whether the amount of public funds with which the government intends to realize its social and economic long-term program intentions is indisputably justified, whether the program goals are adequate, consistent, justified and achievable, whether not. could be achieved in a more efficient way, ie. with less money, with better quality and shorter deadlines. Transparency, management efficiency and control will be further improved, and the progress and progress in meeting the green and digital transition objectives will be assessed in relation to the allocated budget and other public funds.
5. We reiterate the opinion presented in previous positions of BIA on the need to initiate changes in state fees to introduce the cost-covering principle for all state fees, incl. under special laws, which are excluded from the application of the general principle through the regulated special exceptions in the TFP of the State Fees Act.
6. The stated formal intentions for a minimum two-year stay in the Exchange Rate Mechanism - ERMII and accession to the euro area from the beginning of 2023 are not supported by a prudent approach to expenditure planning, the budget deficit in 2020 and 2021, and instead envisages a low permissible minimum threshold of the fiscal reserve and a significant increase in the share of government debt to 28.2% and 29.4% of the projected GDP for 2023 in the general government sector.

In this regard, a realistic forecast for the ceilings of price growth and long-term interest rates, compared to the forecast target values ​​under the relevant Maastricht criteria for the period 2021-2023, should be presented in the reasons for the draft SBL for 2011. with these criteria and timely accession to the euro area is directly linked primarily to the pursuit of prudent fiscal, income and pricing policies, the availability of adequate fiscal buffers and effective counteraction to possible external and internal shocks.

7. We note the numerous external and internal political and economic risks with a potential negative effect on economic growth, employment, consumption and investment, including:

• the unclear macroeconomic prospects for the EU economy, the ongoing global customs war, the lack of an agreement on the so-called Brexit, etc .;
• delayed reforms in key areas such as the regulatory environment, transparency, efficiency and effectiveness of public spending, incl. at the municipal level, fiscal decentralization, social security, healthcare, etc .;
• the set low growth rates until 2030 (1.4%) in the draft of the Integrated National Energy - Climate Plan, accumulated and future obligations for supplies at preferential prices from RES and TPPs, representing excessive state aid, inadmissible interference in the Community market and competition, overcoming the so-called cross-subsidization of electricity prices for household and industry, significant quasi-fiscal obligations (municipalities, state and municipal health care, public enterprises);
• the lack of link between long-term (strategic) and current budget planning;
• the need for decentralization of public finances and changes in the administrative-territorial structure in accordance with the new demographic and economic realities, limited autonomous revenue base of the municipalities, etc.

We note again that the postponement and incomplete application of the new principles for setting the municipal waste tax also does not facilitate the achievement of a reasonable level of financial decentralization in the foreseeable future.

8. Additional changes and measures proposed in previous years by BIA, incl. reformatting the regime for waste management and the so-called product fees, payment of wages to the accounts of employees, acquisition of the right to a pension and benefits from the Social Security against paid insurance contributions, limitation of insurance fraud with the so-called expertise of work capacity through the introduction of the WHO International Classification of Functionality, Human Health and Disabilities (ICF), integration of employment contract registers, insured persons, issued TEMC decisions and the so-called electronic personal health record, which should be introduced in 2021 improving the control over undeclared work, adopting a package of measures to increase working life and a number of other solutions.

9.In full compliance with the requirements of Art. 3 of the Labor Code, BIA again proposes to be consulted in the NCTS at a sufficiently early stage in 2021 medium-term budget forecast. The repeated deviation of these proposals does not provide the necessary transparency of the budget process, the methodology used, macroeconomic bases and forecasts, incl. for growth of labor productivity, compensation of one employee, amount of minimum wage, etc.

10. Expectations of significant growth in final consumption, supported by an overall increase in public administration wages, pensions and social benefits, will limit the size of net exports of goods and services and the current account balance, with a likely additional effect on core inflation. In the conditions of a currency board, following this approach in the period before and after 2023 may generate additional risk for the rapid accession to the euro area, in accordance with the stated official intentions of the BNB.

11. The projected increase in 2021 of salaries in the budget sphere by 10 and 30% for those working on the so-called first line, of the minimum wage by 6.6%, the compensation of one employee by 5.9%, of the average insurance income with 8.9% is defined once again without the necessary link with the decline in labor productivity above 3% and GDP in 2020, which leads to a decrease in competitiveness, expressed by increasing nominal labor costs per unit of output - Unit labor cost .

12. The expenditures under measure 60/40 in the amount of BGN 300 million for 2021 will finance procedures completed by December 2020 under the amendments to CMD 151/2020. Thus, against the background of the radical increase in social expenditures of several billion BGN, the real support for business in 2021 (page 36 of the Reasons for the draft of the State Budget Act 2021) is limited to the reduced rate of 9% VAT (234.4 million BGN), support for artists and creators BGN 2.5 million) and tour operators (BGN 40 million).

13. The projected reduction in gross fixed capital formation in the macroeconomic forecast for the period 2020-2021, -10.5% and -5.4%, respectively, seems realistic as a direct consequence of the current global crisis. At the same time, we do not accept more than the modest growth of capital expenditures under the CFP, which in the period 2021 - 2023 decreased compared to the report for 2019 by 18%, 18.9% and 3.5%, respectively. The planned drastic reduction, compared to the huge growth of social expenditures and taking into account the practice of not budgeting capital expenditures systematically in order to form surpluses for discretionary distribution outside the control of the National Assembly, creates the impression of deliberate refusal to pursue an active policy. announced national targets and priorities.

14. The envisaged total increase in staff costs in the budget sphere, excluding the part for education, should be directed primarily in support of regional and municipal health care, to state bodies with chronic underfunding, performing critically important public functions and public services in order to limit the outflow of qualified staff. In this regard, parallel changes should be made in order to reduce duplicate administrative structures and staff, and low overall performance.

In conclusion, we note again that the State Budget and the Updated Budget forecast should be used as the most powerful tools to put pressure on top spending managers to undertake reforms, achieve the expected program goals and results, accelerate preparations and join the euro area in 2023.

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Draft Social Security Budget Act for 2021

The draft of the Health Insurance Act for 2021 envisages significant increases in pensions, benefits and related expenses, including:

• of the minimum amount of the SES pension - by 20%, from BGN 250.00 to BGN 300.00 - BGN 474.0 million;
• of the maximum amount of pensions - by 20%, from BGN 1,200.00 to BGN 1,440.00 - BGN 94.0 million;
• modernization of the pensions granted until 31.12.2020 by 5.0% as of 1 July 2021 under Article 100 of the Social Security Code - BGN 305.0 million;
• payment of an additional amount of BGN 50.00 to the pensions of all pensioners in the period January-March 2021 - BGN 315.0 million.

Thus, the total growth of the costs of the project of the Health Insurance Act for 2021 increases to BGN 14.8 billion with an expected implementation for 2020 of BGN 13.4 billion or by 10.6%. The planned expenditures for pensions for 2021 are BGN 12,346.7 million, by BGN 1.77 billion or 16.7% more than in the 2020 Health Insurance Act. This significant growth seems justified, taking into account the lag in recent years compared to the growth of the average salary in the country. At the same time, the unclear prospects for economic recovery in 2021 jeopardize the country's long-term fiscal sustainability and could lead to an unreasonably long stay in the ERM II exchange rate mechanism.

A significant part of the so-called one-off costs for 2021, incl. monthly supplements of BGN 50 to pensions, monthly benefits for children, etc., risk becoming permanent in the coming years and threatening long-term fiscal sustainability.

BIA again objects to the refusal and delay of the necessary reforms in the pension insurance system, including:

• the unjustified increase of the minimum wage for the country from BGN 610 to BGN 650 and the related increase of the minimum insurance incomes, inconsistent with the growth of labor productivity, especially in micro-enterprises, in low value-added industries, in municipalities with high unemployment and in violation of Convention 131 of the ILO;
• lack of a decisive approach to changes in the medical expertise of working capacity and disabilities and adoption of the International Classification of Functionality, Disabilities and Human Health / ICF / of the WHO in order to prevent abuse of disability pensions, short-term benefits for temporary disability, acquisition of social rights benefits and services, and shortening the average effective working life in the face of an escalating demographic and migration crisis;
• the lack of measures to radically reduce the abuse of temporary incapacity benefits;
• maintaining the regime of payment of benefits for the first three days of temporary incapacity for work;
• the lack of timely regulation of clear and fair rules for the payment of a supplementary pension by UPF, insofar as the relevant decisions will have a direct significant impact on the exercise of the right to choose between UPF and PSS and costs;
• refusal of changes in the revenue base, the investment policy and the use of the funds of the so-called Silver Fund for financing the current deficits in the public sector;
• the non-linking of the acquisition of pension rights and short-term benefits with the paid insurance contributions. It should be noted again the large number and amount of insurance fraud by accruing social security contributions to fictitious employees, subsequent illegal withdrawal of benefits from social security and acquisition of pension rights and rights to pay guaranteed claims in the event of insolvency of the employer;
• the need to eliminate the contradictions between the requirements for categorization of work, regulated in CSR, related to working conditions, the nature of the work performed and the current regulations (Ordinance for categorization of work in retirement, adopted by CMD № 235 / 20.10.1998) .) in accordance with the arguments presented in the opinion of BIA from 2019;
• the need for direct linking of the insurance contribution with the amount of the received pensions, incl. Encouraging persons with accumulated required insurance experience and not reaching retirement age to take jobs with new employers, even with lower remuneration compared to those obtained in previous jobs, without reducing the amount of pension calculated at the time of acquisition of the required minimum insurance length of service, etc.

BIA supports the preservation of the ceiling for the maximum insurance income of BGN 3,000, the increase of the maximum pension and the preservation of the amounts of the insurance contributions, resp. the zero amount of the contributions for the fund "Guaranteed receivables of the employees". At the same time, the envisaged increase in the minimum pension for length of service radically breaks the link between the insurance contribution of the insured

persons and the amount of the received and newly granted minimum pensions. In this way, the attractiveness of the insurance system decreases and the incentives for undeclared work increase.

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Draft Law on the Budget of the National Health Insurance Fund for 2021

In accordance with the stated support in the National Assembly of the National Health Insurance Fund, BIA supports the draft Law on Budget of the National Health Insurance Fund for 2021. We emphasize that in the course of its preparation a number of proposals of employers' organizations and BIA were supported. the long-standing problems with the financing of the so-called over-limit activity of the hospital establishments, etc. At the same time, we call for the preparation of a generally acceptable framework for health care reforms in accordance with the Proposals of the Board of BIA and the Board of the Association of Municipal Hospitals in Bulgaria, dated September 18, 2019 [2], for changes in organization, management and funding. of healthcare and health insurance.

WITH RESPECT,

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RADOSVET RADEV

Chairman of the Board of BIA