BORRISOV'S PARTY ANNOUNCES ECONOMIC PLATFORM

UNCLAS SECTION 01 OF 02 SOFIA 001216 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON PGOV BU SUBJECT: BORRISOV'S PARTY ANNOUNCES ECONOMIC PLATFORM ¶1. (SBU) SUMMARY: Sofia mayor Boiko Borissov's new political party GERB recently unveiled an economic program aimed at making the party the leading center-right force in Bulgaria. GERB's ambitious economic pledges include a further reduction of the corporate tax burden (from the current ten to seven percent),two-digit economic growth, and eventual privatization of large parts of the education and healthcare sectors. Politicians and economists from both the left and the right immediately denounced the platform as overtly populist and called the release of the document -- nearly two years before general elections -- a move designed only to woo and confuse disillusioned electorate ahead of October 28 local elections. END SUMMARY. ¶2. (U) Mayor Borissov and his party released the GERB economic platform on September 24. In a September 26 meeting with the diplomatic corps, Borissov and his lead economic and political advisors, Stoyan Mavrodiev and Tsvetan Tsvetanov, announced details of the plan. They include: -- A fiscal policy that will target low inflation and allow the government to continue to run budget surpluses. GERB eventually plans to cut state expenditures to 30 percent of GDP (from the current 40 percent),at which point GERB will run balanced budgets rather than surpluses. -- Preservation of the currency board arrangement that was introduced in 1997 until Bulgaria joins the eurozone. -- Further reductions of employer social insurance contributions (to 10 percent from the current 20 percent). -- Eventually reducing the corporate and personal income tax rate to seven percent. (Currently the corporate tax is 10 percent, while the income tax rate is progressive. The GOB is considering a proposal to introduce a flat 10 percent income tax rate on January 1, 2008.) -- Lowering the value-added tax (VAT) to 15 percent from the current 20 percent. -- Introducing a new non-taxable monthly income level of 1,000 leva (USD 725),a more than five-fold increase from the current non-taxable minimum income of 180 leva (USD 130). -- A 10-12 percent annual growth of GDP made possible through investment that will come as a result of tax cuts and improvement in the business climate. -- Large-scale privatization of the education sector and the introduction of merit-based salary increases for teachers. -- Privatization of the healthcare sector through the elimination of the monopoly of the State Health Insurance Fund and the introduction of private health funds. -- Across-the-board privatization of all remaining state assets, including the state-owned railways and postal services. ¶3. (SBU) GERB opponents on the left and right immediately termed the ambitious platform populist, offering something to everyone without proper analysis of the effects such policies would have on budget revenues. The ruling socialists, as well as opposition parties, questioned the timing of the platform's release -- two years before general elections are scheduled. They asserted GERB was making unobtainable promises about national-level policies that it was in no position to fulfill, in hopes of confusing voters ahead of local elections scheduled for October 28. ¶4. (SBU) COMMENT: GERB's economic ideas are ambitious, even breathtaking in audacity and scope, and, at times, contradictory. Collectively, the plan would overhaul huge public sectors (healthcare and education) and re-write both the tax code and business environment. GERB's plan for a substantial reduction in the overall tax burden clashes with its short- and mid-term target of low inflation. The proposed tax cuts, along with a dramatic increase in the non-taxable income level, would likely have a severe impact on government revenues, something our GERB contacts admit they have not analyzed sufficiently. ¶5. (SBU) COMMENT CONTINUED: While GERB is riding high in the polls now, many of GERB's economic ideas (as well as the party itself) may lose momentum by scheduled 2009 general elections. Furthermore, any future GERB-led government will likely need coalition partners, a fact of Bulgarian political life that will undoubtedly weaken GERB's ability to fulfill many aspects of this wide-reaching economic platform. Practicalities aside, GERB captured headlines; other parties are reacting to its proposals. For an upstart party with a charismatic leader seeking the broadest appeal with disaffected voters, the media and political attention was, undoubtedly, part of the game plan. SOFIA 00001216 002 OF 002 BEYRLE