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