May 13 marks Tax Freedom Day 2024

A total of 134 days we work for the state treasury in 2024. The budget for this year predicts consolidated revenues in the amount of BGN 75.3 billion. Assuming that we generate over BGN 562 million per day - calculated on the basis of the estimated GDP of 206 billion BGN in 2024, it takes 134 days to replenish the state treasury. According to the calendar, taking into account the fact that it's a leap year, the Tax Freedom Day of sorts falls on May 13, 2024. That's the hypothetical date we'd fill the state coffers if everything we make since the beginning of the year only goes into benefit of the budget.

This date coincides with the consolidated revenues in the treasury, but we should also take into account the large budget deficit in recent years. In 2024, consolidated government spending is forecast at BGN 81.5 billion, which means that the deficit in government finances is expected to reach BGN 6.2 billion. This amount is equivalent to 11 additional days in which the economy should only work for the budget if we want to have no deficit and cover all expenses without incurring new debt. The medium-term budget forecast foresees a deficit of BGN 6-7 billion in 2025 and 2026, so the topic of the sustainability of the budget, the size of the state debt and the interest on it will be particularly relevant in the coming years.

It is interesting to trace all the channels through which the 81.5 billion BGN consolidated expenses in question are financed. Indirect taxes bring BGN 25.5 billion, incl. BGN 18.6 billion from VAT, nearly BGN 6.5 billion from excise taxes and less than BGN 400 million from customs duties. Over 31% of the total budget framework is financed by consumption taxation. Direct taxes bring BGN 12.9 billion, incl. BGN 7 billion from personal income taxation and BGN 5.9 billion from corporate taxes. This is a total of about 16% of the total budget framework. Incomes from social and health insurance reach BGN 17.7 billion, incl. BGN 12.8 billion contributions to public insurance (pensions, general sickness and maternity, unemployment, etc.) and BGN 4.9 billion contributions to health insurance. In total, the insurances finance 22% of the total budget framework.

The revenues described so far cover more than 2/3 of the budget framework. Other significant sources of income are property taxes - nearly BGN 1.6 billion in revenue, and various non-tax revenues, including BGN 3.5 billion revenue from fees, BGN 1.8 billion revenue and income from property and BGN 2.5 billion from the sale of assets. In total, non-tax revenues finance about 12% of the budget framework. To them we can add an annual contribution of BGN 660 million from the BNB. Aid plays an important role in the budget, with transfers from the EU expected to reach over BGN 7 billion. These are funds that largely finance capital expenditures in the budget, that is, they support public investments. Nearly 9% of the total budget framework is financed by the EU.

Although in 2024 we observe the normalization of the budget procedure - there is an adopted budget, a list of investment projects and rules for key budget indicators (for example, the formula for determining the minimum wage), fiscal policy continues to be put under serious pressure. These risks are further amplified by the new wave of political instability, which raises questions about both budget execution and the course of fiscal policy after the parliamentary elections. From a macroeconomic perspective, it is time to focus on results-oriented spending policy and curb the automatic growth of the spending side without real progress in key public areas.

In the short term, the most dangerous decisions seem to be subsidies or tax preferences for hundreds of millions, which have become more frequent in recent years and months. The return of the economy to low inflation means that revenues will now depend on collections and, more generally, on growth in investment, income and consumption. This is already visible in the current data on the implementation of value added tax revenues. This is all part of the real debate about budget sustainability, reducing the deficit and creating a pro-growth tax environment, which, by the way, the political parties owe to the citizens ahead of the upcoming elections.