In Bulgaria, politicians argue, but they do not want elections and tax increases

In Bulgaria, politicians argue, but they do not want elections and tax increases
In Bulgaria, politicians argue, but they do not want elections and tax increases

In 2024-25, the government will focus on further improving tax collection. Crackdowns on tax evasion and improvements in public administration should reduce favoritism to politically well-connected businesses. Although there is a broad consensus on low taxes, the effects of the economic recession in 2020 and a significant fiscal expansion may lead the government to raise the overall tax burden in 2024, but this is not our main forecast.”

This is stated in the current forecast for Bulgaria by the “Economist Intelligence Unit” from November, which emphasizes that the tax burden in the country is slightly above 29.2% of GDP (in the second quarter of 2023), as in the EU only in Ireland and Romania it is lower. The business advice of the analyst unit of the Economist magazine publishing group is to set aside funds to raise wages. The reason is that government policy, falling inflation to still relatively high levels (ie reduced income in absolute terms with continued increased debt repayment needs) and worsening labor shortages may surprise them unpleasantly in 2024 Mr.

Employees may demand additional large wage increases in the coming quarters, and companies should be aware that labor costs may increase significantly again in 2024, reducing competitiveness and profit margins, as well as reducing willingness for some businesses to hire new staff.

The expected increase from January 1 of the minimum wage by about 20% to BGN 933 will also increase average wages (in the private sector – more slowly), and real wages will increase by 6.3% (with a previous forecast of 2.4%).

But, on the other hand, the risks coming from the labor market are moderate in probability, impact and intensity, including because, despite the rapid increase, average wages still remain the lowest in the EU.

The euro and inflation

There are several factors to watch out for in the next two years, one of which is whether Bulgaria will adopt the euro on January 1, 2025.

But despite this, due to the commitment created by the currency board, many things depend on the actions of the European Central Bank, “Dnevnik” reports. On November 10, it set the interest rate at 4.5%, and the authors at the Economist Intelligence Unit expect this level to hold until at least mid-2024, after which there will be a reduction in the second half of the year. However, there is a growing risk that the ECB will be forced (inflation in the eurozone was 4.3% in September, well above its 2% target for the year) to raise interest rates early next year or delay a rate cut until 2025.

The BNB will be forced to follow this logic, which means preserving the increased costs of households for repaying loans and their reduced demand, especially for consumer goods.

Political stability

In this context, business is interested in the risks to political stability. The assessment of these is that they remain significant, although the political crisis seems to have temporarily subsided. Large-scale anti-government or other violent protests are unlikely in 2024-25. The government will remain in office during that period, but the risk of early elections will increase over time, analysts say.

The peak of mistrust and hostility between the PP-DB of GERB will probably occur around March 6, when the Prime Minister must be replaced on a rotational basis. In the run-up, each party will seek to protect its influence over key ministries and government structures.