News

November 29th, 2016 | 11:00 - 12:00

BTA Pressclub

The IME will present the fifth annual edition of Regional Profiles: Indicators of Development on November 29th, 2016. Some of the main topics that will be discussed are:

• which districts have already recovered from the crisis and which are yet to do so;
• Is Sofia the main difference between Northern and Southern Bulgaria;
• has investment turned after the crisis;
• do EU funds support the cohesion amonf districts;
• in hwich parts of the country is the labor market recovery losing momentum;
• what is the state of municipal budgets and how is the financial consolidation going;
• is there a trend towards higher taxes

The results will be presented by:

Desislava Nikolova, chief economist, IME

Petar Ganev, senior economist, IME

Yavor Alexiev, economist, IME

Aleksander Tsvetkov, Regiostat

For more information, please contact Mrs. Vessela Dobrinova (02/952 62 66, vessela@ime.bg)

Desislava Nikolova

In 2014 the Bulgarian economy finally managed to overcome the effects of the last economic crisis, as the national real GDP surpassed its pre-crisis level. Nevertheless, the recovery is yet to occur in most of the country’s regions.

Real GDP has still not reached its 2008 level in 19 of Bulgaria’s 28 districts. These districts are scattered throughout the entire country, with (unsurprisingly) the North-West region being the only one in which none of the districts (Vidin, Montana, Pleven, Lovech and Vratsa) have recovered.

The other two northern regions are still recovering, but are close to the “finish line” – i.e. the pre-crisis level of production. The districts, whose economies are front running the recovery in these regions and have already overcome the effects of the crisis, are Veliko Turnovo and Razgrad in the North Central region and Varna and Dobrich in the North-East region.

As of 2014 the South Central region is also still “under water” and its real GDP is yet to reach the 2008 levels. In this region, though, the district of Plovdiv remains the great exception. Due to significant investment in the last few years, Plovdiv’s real GDP is already 8.5% higher than back in 2008.

The South-West and South-East regions have already reached real GDP levels that are 2-3% higher than before the crisis. The districts that lead the recovery process in these regions are Sofia (cap._ and Sofia (district) in South-West Bulgaria and Stara Zagora and Yambol in South-East Bulgaria.

Considering the fact that Bulgaria’s real GDP growth accelerated to 3% in 2015 (nearly twice the 2014 level), it is quite probable that other districts have also already reached their pre-crisis levels. In 2015 employment levels increased in most of the country’s districts, which implies the continuing spread of positive economic trends. The 2015 regional GDP data will show which districts face more than simply cyclical problems, but rather structural issues such as lack of investment, rapidly deteriorating demographics, lack of qualified labour force, low level of infrastructural development or other factors, which hinder the development of these regions.

Nikolay Slavkov*

This article compares Northern and Southern Bulgaria based on three major income and standard of living indicators:

• GDP per capita
• Average annual household income
• Average annual gross salary

According to some economists a true comparison between North and South Bulgaria cannot be made without excluding the impact of the capital city Sofia of the analysis data. For years, Sofia-city has differed from any other region in the country and it is claimed that the better results shown by South Bulgaria is solely the result of this. So here after the comparison of South and North Bulgaria we added another indicator that excludes Sofia-city from the South Bulgaria.

Since the year 2000 the gap between North and South Bulgaria is constantly increasing and this effect accelerates with the onset of the economic crisis in the country in 2009. What is interesting, however, is the data for South Bulgaria excluding Sofia. It shows that there is a similar development in the region and North Bulgaria, but again a change occurred with the onset of the economic crisis in 2009. It is obvious that the economies in North Bulgaria received a  more serious blow by the crisis and then they gradually managed to overcome the consequences of the economic shock and reach the average level of GDP per capita in South Bulgaria (except Sofia) in 2014. The probable cause of the deeper crisis in Southern Bulgaria (excluding Sofia) is, on one hand, the fact that the main economic centers that attract investments are located there. On the other hand, in North Bulgaria the prerequisite for the lack of such investments is the poor demographic structure and poor infrastructure which is also an obstacle to a more rapid recovery in the region after the crisis.

The dynamics of wages in the Southern and Northern region is also interesting. As expected, the gap between South and North Bulgaria  is deepening and over the years this trend has been sustainable. It can be seen be observed, however, that comparing wages in South Bulgaria to the ones in North Bulgaria after Sofia-city is excluded from the southern part of the country, that both series have relatively identical trends over the years with minor differences. The data are surprising against the overall worse economic development of the North, and probably can be attributed to a certain arbitration of the labor force, for instance due to internal migration between regions, wages on both sides of the Balkan are almost equalized.

The last indicator used to compare the two parts of the country is household income. The capital is again the area that pulls Southern Bulgaria ahead and maintains the difference between South and North Bulgaria. In the statistical series where the capital is not included, however, there is a lag , albeit a slight one. This is due to the fact that here not only gross wages are included, but also some other indicators such as pensions, other compensations and other welfare, rent income and other income, where North Bulgaria has had an edge in the last years.

Apparently, when the the capital is exuded from the data, North Bulgaria does not yield to the southern part of the country according to any of the three indicators compared here. Unfortunately, this supports the claim thatat the better results of the south Bulgaria are owed to the capital, despite the rapid growth of Burgas and the major investments attracted by Plovdiv and Stara Zagora.

*Intern at IME

Two out of every three tax changes on a local level are in an upward direction

Yavor Aleksiev

In the period between April 2012 and June 2016 the IME conducted 5 separate surveys of the levels of local taxes and fees, as a part of the project “Regional Profiles: Indicators of Development”. Our requests were sent to all municipalities in the country under the Access to Public Information Act (APIA). The scope of the study includes five types of taxes and fees:

• Immovable property tax for legal entities (‰)
• Vehicle tax – commercial and passenger vehicles, 74 kW to 110 kW (BGN per kW)
• Annual license tax for retailers – up to 100 sq. m. of retail space - for most favorable location of the site (BGN per sq. m.)
• Annual waste collection charge for properties of legal entities (‰)
• Local tax on the sale of immovable property (‰)

Results from the Survey

During the 2013-2016 period we have identified 107 cases of a decrease of local taxes and fees and 209 cases of an increase. This means that two out of every three changes on the local level lead to higher taxes and fees for citizens and businesses. Most probably the actual number of changes (in both directions) is higher than those registered by us, but official and comprehensive information about this is absent. The data we have collected cover around 80% of the municipalities and gives a good enough idea of the changes in the main taxes and fees on a local level.

Number of cases of increase and decrease of local taxes and fees for the period 2013-2016

Source: IME, based on requests to the municipalities under APIA

When we last did a similar review (for the period 2013-2015), the waste collection fee and the license tax for retailers proved to have been more frequently decreased, rather than increased. Adding up the data from 2016 as well, however, changes the overall number of increases of the waste collection charge to 76 for the period 2013-2016, while the total number of decreases is 68. In the case of the license tax for retailers the number of increases and decreases equalize at 10. Thus, according to the most recent data that we have, there is no longer a case of a tax or a fee, which has been decreased more times than it has been increased for the period.

It is evident from the data that the trend in regard to the tax on the sale of immovable property and the immovable property tax for legal entities is one and the same – upwards. Both taxes have been increased 7 times more frequently than they have been decreased. Increases in the vehicle tax are also becoming more and more frequent.

The changes during 2016

The problems for municipal budgets in the wake of the crisis and the intensive utilization of EU funds (which implies pre-financing and co-financing from municipalities) obviously had an impact on the fiscal policy of local authorities. According to the information provided by the municipalities themselves, during 2016 there was a record number of increases of local taxes and fees – a total of 81 times. The occasions, in which a tax or a charge was lowered, are barely 17, which is the second lowest value for those 4 years.

Number of changes in the level of the local taxes and charges throughout the years

Source: IME, based on requests to the municipalities under APIA

During 2016 there are 25 occasions of an increase of both the waste collection charge and the Immovable property tax for legal entities. The number of increases of the vehicle tax is 15, and that of the local tax on the sale of immovable property is 10. The license tax for retailers has been increased barely 6 times, but this is also a record on this type of tribute, which is among the most infrequently changed.

What are the explanations?

The numerous cases of increase of the amount of local taxes and fees in 2016 act as evidence for the fiscal difficulties of municipalities at the end of the previous programming period of the EU, and indicate the lack of real tax competition between them.

The low share of local taxes in total tax burden on enterprises and businesses places objective limits to the degree of tax competition between municipalities. It is very unlikely that whether the immovable property tax is 1‰ or 2.5‰, for example, is a prerequisite for the movement of investments in and out of a given municipality. The vast majority of the tax burden is tied to the central government, which largely undermines the attempts of municipalities to compete in attracting business (not to mention citizens) by reducing the local tax burden.

The recent local elections as well as the practical discreditation of the process of fiscal decentralization during the fall of 2015 most likely also played their own role in the numerous increases in taxes and fees in 2016. In 2015 the government managed to discredit the concept of fiscal decentralization (linking it with higher taxes) and to shift the whole issue, moving the attention from the insufficient revenues of municipalities to their debt problems. In addition, we have to mention the calls by Prime Minister Boyko Borissov to increase the size and collection of local taxes and charges. Nearly half of the cases of increase (39 out of 81) are in municipalities won by his party – the CEDB. However, given the total number of municipalities in which the party won the elections, this share is rather insufficient to show some kind of pressure from the central government.

Thus, we can differentiate two main reasons for the observed increases in local taxes and charges in 2016:

1. Structural reason - lack of real tax competition between municipalities in the country which is a consequence of their limited fiscal powers;
2. Cyclical reasons - the end of the previous programming period and its effect on municipal budgets, the passing of local elections and the terminated process of fiscal decentralization.

Yavor Aleksiev

Just a year after the topic of fiscal decentralization briefly entered the public debate, the political volition for taking actual steps in this direction seems exhausted. The government stifles to a large extent the initiative of local authorities in two steps:

1. The successful transformation of the debate of last year’s fall into a debate about higher taxes. After delaying for years the discussion about transferring part of the proceeds from taxes on personal income to the municipalities, Finance Minister Vladislav Goranov made a move that largely discredited the idea of ​​fiscal decentralization. The proposal to maintain the level of taxes on personal income at the national level and to give municipalities the power to additionally "burden" workers with up to 2 percentage points increase of this tax (on the eve of local elections) silenced the local authorities to a large extent on the topic, at least for the fiscal 2016 year, and probably for later on as well.
2. The adoption of a mechanism for financial recovery of municipalities, which even though provides tools to promote higher collection and optimization of administrative costs for troubled municipalities, makes local finances even more dependent on the central government. Particularly worrying is the possibility of pardoning the accumulated interest-free loans of distressed municipalities from the central budget, in the case of satisfactory results in the recovery of the local finances – an obvious tool for favoritism towards certain mayors.

With the first step the government managed to make the concept of fiscal decentralization sound unappealing by linking it with a rise in taxes and with the second step it managed to change the subject completely by diverting the attention of municipalities from the lack of income sources towards their debt problems.  In other words, while the supporters of fiscal decentralization were trying to give Bulgarian municipalities the image of a responsible and less dependent local authority, the mechanism for financial recovery managed to portray those same municipalities as fiscally irresponsible.

Despite these steps made by the MF (Ministry of Finance), the public remains enthusiastic towards fiscal decentralization, which is why we want to draw attention towards two recent reports published on the National Association of Municipalities in the Republic of Bulgaria (NAMRB): "Analysis of the implementation of municipal budgets for 2015" and "Indicators for the development of fiscal decentralization in South-East Europe: 2006-2014."

• There is practically no country in South-East Europe, where the debt of local authorities has not grown over the last decade. In general, this fact is explained by the need for higher capital costs and relatively smaller tax powers of local authorities compared to municipalities in Central and Western Europe.
• The increased indebtedness of Bulgarian municipalities (especially in 2015) is to a large extent a direct consequence of the lack of alternatives for co-financing investments for EU projects. It should be noted, also, that 2015 was the last year in which payments for European projects from the previous programming period (2007-2013) could be made.
• Revenues of local authorities in Bulgaria as a share of GDP fell from 7% in 2008 to 5.3% in 2015. At the same time this decrease occurred at a time of a gradually rising tax burden in the economy as a whole. As part of the consolidated budget the revenue for the same period fell from 19.6% to 14.4%.
• Lacking other opportunities to raise their own funds, Bulgarian municipalities have resorted for the most part to an increase in property taxes. The collection of these taxes, however, remains below 70% in 118 of the 265 municipalities in the country.  In addition, these taxes are subject to a number of tax exemptions. Practically, all sudden increases in the revenue are observed in smaller municipalities and are due to one-time proceeds, grants or sales of property.
• The structure of the municipal revenue collection disallows the use of the budget as a policy-making tool, including debt management. Actually, the last things that depend on local spending policies in Bulgaria are decisions of municipal councils and preferences of local communities.

There exists a problem with municipal debt in Bulgaria, indeed. However, in the general case the debt is not created by arbitrariness and fiscal irresponsibility of the local authorities, but by structural problems of the tax policy. In order for a municipality to negotiate first, and then successfully repay the loan, it must manage the bulk of its revenues (i.e. its revenues have to play a significant role) and have more control over their spending. Unfortunately, except for a few major cities and resort communities, most municipalities in Bulgaria have a much lower share of disposable income and rely heavily on transfers from the central governent.

The differences in the capacities of municipalities to generate their own revenues are significant, which is a problem that will not resolve itself with remising a portion of the proceeds from taxes on personal income. However, some improving process should be initiated and the only action that is logical and technically feasible in the medium-term is namely linking the economic processes on the territory of a municipality with its budget.

In 2015 the number of registered crimes continued falling and reached 98 thousand in comparison with 135 thousand back in 2000. Crime levels have also decreased in relative terms - from 16.6 per thousand people to 13.6 per thousand people for the 2000-2015 period.  This trend was interrupted only during the first years of the crisis (2009 and 2010), during which the number of registered crimes was rising. One possible explanation for the surge in the beginning of the crisis is the quick increase in unemployment and the overall drop in per capita income.

Despite the decrease in registered crime rates, the number of unsolved cases has been decreasing even faster.  The total registered crimes have dropped by 28% in 2015 compared to the year 2000 but the number of unsolved crimes is 37% less for the same period.

Overall, this data shows that in 2015 only 39.2% of registered crime cases were solved. In the year 2000, on the other hand, 45.4% of the registered crimes were solved (55% remained unsolved).

This significant decline in the number of solved crimes can be explained with the lack of reform in the Ministry of Interior (MI) and mainly the fact that its huge budget is being spent primarily for salaries and maintenance and not for capital investment. Additional reasons are the sluggishness and the anachronistic characteristics of the system, the possible existence of corruption and unregulated practices between the MI and the judiciary system.

Additionally, the data shows significant differences between the number of crimes registered and solved in different Bulgarian districts.

In 2015 the lowest number of per capita crimes was registered in Kardzhali and Smolyan, where crime levels are over three times lower than those in the districts with the highest crime rates: Burgas and the capital Sofia. It is worth noting that the more economically developed districts are also the ones with the highest registered crime rates. Of course, there are exceptions. For example, in the moderately developed regions Ruse, Plovdiv, Veliko Tarnovo and Blagoevgrad there are comparatively low crime rates, while the districts Vidin and Pernik perform poorly in economic terms and register rather high criminal activity.

Compared to 2000, the number of registered crimes has decreased the most in the districts Varna, Shumen and the capital.  Only in four districts the rates per 1000 people from the local population are rising: Gabrovo, Sliven, Sofia and Haskovo.

The share of unsolved criminal cases varies significantly among different districts. In 2015 the share of solved crimes in Varna and the Capital is barely 30%, while in Razgrad, Silistra and Targovishte it is over 60%. On the one hand, in the districts, which are more economically developed, the registered crimes are more and the relative share of successfully solved crimes is lower. Targovishte, Razgrad and Silistra, on the other hand, are the districts with the lowest crime rates (per capita) and also have the highest disclosure rates.

In comparison with the year 2000, the success rate of solving crimes has declined in 20 of the country’s 28 districts, with the biggest drops being registered in Gabrovo, Burgas and Montana. 

Yavor Aleksiev, Bozhidar Radev*

On the background of the frequently discussed data about the external migration of the population, the migration processes in the country itself are often left aside from the public interest. The examination of the data from NSI (National Statistical Institute) for the period between 2007 and 2015 shows, that 79% of the migration is actually internal for the country and migration toward the capital is 2.7 times lower than the total migration toward the other 27 districts.

The mechanical movement of the population between the districts tracks people who have changed their current address. Here, the data describe both the internal and external migration by means of the emigration of the population from a given district. Since 2007 the data of the mechanical movement of people between the districts of Bulgaria include also data about external migration, because of which our focus is exactly on the period 2007-2015. More detailed data about migration to and from each district throughout the years is available on the website of NSI.

In this article, we divide the population of each district into three groups: 1) headed toward the capital; 2) headed abroad; 3) headed toward foreign countries. The individuals who change their current address without leaving the borders of the district, which they inhabited before (for example, a person who moved from Nessebar to Burgas), are not subject to the current analysis.

Source: NSI, calculations of IME

In the time period between 2007 and 2015 the individuals who change their current address, while at the same time leaving the district, in which they reside, constitute almost 743,000 people. Around 157,000 of them move to the capital, and almost 156,000 abroad. The remaining 430,000 change their current address with one in another district of the country.

In each year of the period 2007-2015, over 50% of the people who change their current address, actually go in one of the other 27 districts of the country. The most people move to Plovdiv (47,000), Varna (44,000) and Burgas (34,000), and the least move to Vidin (6,700), Smolyan (5,700) and Kardzhali (below 5,000).

The peak of the migration toward the capital is in 2011, when almost 26% of the individuals who have changed their current address head precisely toward it, and only 15% go abroad. 2011 is the year with the least amount of mechanical movement of the population and the reason is the fall of external migration. In 2011 the number of people who have changed their current address with one abroad drops around three times compared to 2010: from 27,000 to 9,500 people. In the period 2012-2015, however, there is a tendency that more people prefer foreign countries rather than the capital, while in the last two years of the period for the first time a bigger proportion of the population leaves the country rather than moves to the capital.

A quick analysis of the interaction between different socio-economic indicators and the mechanical movement of the population shows moderately positive relation between the migration toward Sofia and the age structure of the population by districts. The greater the age correlation (measured as the ratio between the number of individuals of age above 65 and those of age from 0 to 14, or as a ratio between those of 65 years or above and those in the age 15-64), the higher the proportion of people who have moved to the capital. Vice-versa: the more unfavorable the age structure, the lower the migration toward both foreign countries and other districts.

MIGRATION TOWARD SOFIA

The distance to the capital definitely has an effect on the decision to move to it. The three districts, from which the largest portion of the population in the period 2007-2015 has headed toward the capital, are the Sofia district (56.3%), Pernik (50.5%) and Kyustendil (43.8%). In unison with the tendency of concentration of the employment in the South-West region of the country in Sofia (already above 66% of the employed in the region work precisely in the capital), the most likely cause along with the proximity is the labor migration.

The least are the migrants from the distant Razgrad (9.4%), Sliven (13.9%) and Targovishte (14.1%), followed closely by Kardzhali and Shumen (each with 14.3%). The only districts, from which the migrants in the capital have been less than 10% in any of the years, are Razgrad (in every year of the period 2011-2015) and Kardzhali (in 2015).

There are no clear tendencies of a more intensive migration toward the capital from none of the districts of the country. In accordance with the overall picture, more and more individuals are headed abroad, while a traditionally large portion (above 50% in each of the years) in other districts. However, a gradual fall of the migrants toward the capital from almost all districts in the Northern part of the country can be noticed, including from Vidin and Vratsa, which are among the districts with a traditionally high level of migrants in Sofia. Given the depopulation in large areas of those districts, it is possible that those who had the plans to move have already done it.

MIGRATION TOWARD FOREIGN COUNTRIES

The migration toward foreign countries has its peak in 2014, when 25.9% of the individuals are headed this way. In 2015, this portion falls to 25.4%, which, however, is the second highest for the period. Most significant for the whole period is the migration toward foreign countries from the districts Kardzhali (35.5%), Varna (30.5%) and Plovdiv (29.8%).

In contrast to this data, only one of every five people, who have left Sofia in the period 2007-2015 has gone abroad, while the rest have headed toward other districts. This portion is even smaller in neighboring the capital districts, like the broad Sofia district (only 9.8%) and Pernik (15.4%), from which the greatest amount of people change their current address exactly with one in the capital.

MIGRATION TOWARD OTHER DISTRICTS

A huge part of the capital’s residents, who change their current address, move to the broad Sofia district. Varna continues to be a center of attraction of the population in the North Central and North-East regions of the country, while the districts Plovdiv and Burgas are such for those of the South Central and South-East regions. Precisely this process explains the positive mechanical growth in these districts in the observed period (with the exception of 2009-2010 for district Plovdiv and 2012 for Varna and Burgas). In other words, in those three districts more people continue to immigrate, rather than emigrate.

* Bozhidar Radev is an intern in IME

[1] Due to the fact that the data from NSI shows a change in the current and not the permanent address, it is possible that the same individual shows up in the statistic two or more times in the duration of the observed period.

[2] Although Kardzhali is the district, in which the inflow of people from inside the country is the smallest, it is one of the districts with the most intensive external migration. At the same time the migration of the population of district Kardzhali toward other districts in Bulgaria is relatively low, i.e. the movement of the population abroad and from abroad (of course, mostly from and to Turkey) has a much bigger influence, compared to the other districts.