As an employers’ organization representing some of the most significant industries in Bulgaria, we believe that the proposed State Budget for 2026 does not reflect the real needs of the Bulgarian economy and fails to provide the essential conditions for growth — predictability, competitiveness, and an attractive investment environment.
Instead of focusing on reforms and effective management of public funds, the draft relies on mechanically increasing revenues through higher social security contributions and expanding expenditures. This is a short-term approach that will lead to weaker economic activity rather than sustainable funding of public systems.
Our Key Arguments
1. Lack of Strategic Vision and Predictability
Bulgaria is entering a crucial period — joining the Eurozone and strengthening competitiveness compared to other EU and regional economies. Instead of presenting a medium-term fiscal framework with a 3–5 year horizon, the draft budget focuses on short-term deficit coverage.
This undermines investor confidence, as businesses make decisions based on stability, predictable tax conditions, and consistent policies. When companies cannot anticipate future tax and social security parameters, they postpone investments, slowing down economic growth.
2. Fiscal Expansion Without Reforms
Public sector spending continues to grow without mechanisms ensuring better services, efficiency, or control. The deficits in the National Social Security Institute (NSSI) and National Health Insurance Fund (NHIF) remain above 40% and are covered mainly through higher contributions.
This model has already proven ineffective — more money in the system does not automatically lead to better results. Without reforms, increasing expenditures will only create constant pressure for new hikes in contributions, taxes, and debt.
3. Higher Social Security Burden and Its Effect on Business
The proposed increase in pension contributions and the maximum insurable income means a real rise in labor costs by over 10%. For an economy already facing higher energy, raw material, and logistics costs, this is a serious blow.
Bulgarian enterprises are losing their competitive edge compared to countries with lower costs, and for some labor-intensive sectors, the impact could be critical.
Moreover, such measures are pro-inflationary — rising business expenses translate into higher consumer prices, which further reduce purchasing power and constrain consumption.
4. Penalizing Compliant Taxpayers Instead of Tackling the Grey Economy
The shadow economy still accounts for 22–35% of GDP. In such conditions, increasing contributions encourages concealment, not compliance.
Instead of focusing on control, reducing abuses, and introducing electronic tracking mechanisms, the burden is shifted onto those who already play by the rules. This discourages fair employers and sends the wrong signal to the business community.
Specific Recommendations
1. Social Security Policy
- Do not increase contributions — this model is proven ineffective and suppresses the labor market.
- Advance the pension fund reform bill, including the creation of multi-funds that can invest in the Bulgarian economy. This would reduce the budget’s dependency on additional contributions and help retain capital domestically.
2. Spending and Efficiency
- Introduce independent audits for all budget-funded institutions — without efficiency data, there is no justification for higher spending.
- Link public sector salaries to performance indicators, results, and service digitalization.
- Adopt a Public–Private Partnership Act — a tool successfully applied across Europe that enables infrastructure and innovation financing without overburdening the state budget.
3. Investment and Business Environment
Investments in Bulgaria have dropped to historic lows — only 1–1.5% of GDP, compared to around 20% in the years following EU accession.
- Implement an accelerated process for capital expenditures, public performance indicators, and the removal of administrative barriers.
- Introduce tax incentives for reinvested profits, technological modernization, innovation, and automation — policies that directly raise productivity and, with it, incomes.
4. Dialogue and Predictability
Businesses need at least 60 days to review and comment on changes that directly affect their costs. Without partnership, impact assessment, and transparency, institutional trust erodes, and policy decisions become a source of uncertainty.
Expected Consequences if the Draft Budget Is Not Revised
- Labor costs will rise by 8–10%, pushing prices upward.
- Investment delays and potential relocation of operations to lower-cost markets.
- Expansion of the shadow economy.
- Larger budget and social system deficits without improved public services.
Conclusion
What Bulgaria needs are reforms, not mechanical spending increases.
We need predictability, a long-term framework, and genuine partnership with business.
We need incentives for investment, innovation, and growth, not additional burdens.
Only through such an approach can Bulgaria use Eurozone accession as an opportunity for accelerated development — rather than a period of additional strain on businesses and employees.
