Petar Ganev from IME: The budget chaos continues in full force, does the state shut down on June 10?

The budget chaos continues in full force. This week, the negotiations for a new government went into an ominous loop, the budget committee in the parliament never got to work on the submitted draft of the state budget, and finally the leader of the largest party threatened that without a government the state would be left without a budget and stop functioning, commented the economist from the Institute for Market Economy (IME) Petar Ganev in his analysis in the organization's weekly newsletter.

Against the background of recent events, it is appropriate to bring some clarity to what and how we can expect regarding the budget in a scenario of frankly malicious moves by the parties in the National Assembly.

The date of June 10 is not accidental, because then the three months of validity of the extension law expire. We remind you that the period of three months runs only when there is an active National Assembly, and therefore the date at first sight seems a bit arbitrary. Here we will not argue at which exact moment a National Assembly is constituted and the term in question begins to run, simply assuming that the end date is indeed June 10. After that date, the extension provisions of the budget cannot be applied without a new decision of the parliament. Art. 87 of the Law on Public Finances (PLF) very clearly describes the procedure, as in para. 4 it is said that "The National Assembly, on the proposal of the Council of Ministers, determines by decision an additional period for collecting revenues, for making expenses and for providing transfers".

Simply put, if Parliament does not get down to business with the adoption of the budget next week, the Minister of Finance will most likely introduce a new extension law to comply with the provision of the Public Finance Act. On paper, it should be impossible for a deputy to do this, the initiative is in the Council of Ministers. Here we should already consider the insane scenario in which the deputies refuse to vote on such a proposal and send us into an institutional budget crisis. If the National Assembly does not adopt a new supplementary law or a decision under Art. 87 of the ZPF, after June 10, the budget provisions are not in force and accordingly the central government will not be able to make payments and transfers.

In this case, we are not talking about a "zero budget" or "inertia budget", but simply a technical blockage of the central government. It is important to clarify that Art. 87 of the ZPF allows the Council of Ministers "to assume state debt for the refinancing of the debt in circulation up to the amount of annual repayments on the state debt assumed until the beginning of the relevant budget year". In other words, the state will not go bankrupt and will make its payments on the state debt. However, all other payments and transfers from the state budget would be blocked. The Health Fund and the National Institute of Public Health will be able to make partial payments, as they have their own budget and revenues, but they also depend on transfers from the state and cannot do it alone. There is even an option where the NSI Supervisory Board increases pensions under the Swiss rule from 1 July, the new pensions are due but simply cannot be paid in full.

This whole picture seems almost unbelievable, but on paper it is possible with dishonest behavior of the parties in the parliament. A key point here is that budget deadlock can be overcome very easily. Parliament can take the necessary decision to extend the budget within 1-2 days. This means that it is possible that the blocked budget card will be played to the last, even if, for the sake of edification, we are thrown into an institutional budget crisis for a few days. If we skip June 10 and block the budget, the president will certainly not dissolve the parliament until the deputies adopt at least one of the described solutions to allow the normal functioning of the treasury. The pressure on Parliament to take some action would be enormous and the parties would be forced to withdraw their bluff.

All of this shows that the blocked budget card, if played, will be more of a blame game that may even spill over to June 10. The end result, however, will inevitably be another budget extension. Technically, this will be a solution, but from a fiscal point of view, we will remain in another temporary option, without policies and a clear horizon before the budget. The better option is for the budget majority, which has already formed between the two largest formations in the parliament, not to return the initiative to the president and to vote its own budget with a low deficit, which is completely achievable in the next three weeks, comments Petar Ganev in conclusion.