PM Sergei Stanishev and Turkish minority party leader Ahmed Dogan

The leaders of the three governmental parties in the ruling coalition decided to cut social insurance contributions 3 per cent, up pensions by 10%  from October and introduce a flat tax of 10 per cent for individual incomes as of next year. The decision paves a way for a big change in Bulgarian tax system

The meeting was held to discuss the macroeconomic framework of the 2008 budget. Participating were Prime Minister Sergei Stanishev of the Bulgarian Socialist Party, Ahmed Dogan of the Movement for Rights and Freedoms, Simeon Saxe-Coburg-Gotha of the Simeon II National Movement, the political leaderships of the three parties and MPs.

The changes seek to stimulate the investment and business clime while reducing the tax and social insurance burden on Bulgarians, the government said. The reduction of social insurance contributions during the current year and the new increase of pensions by 10 per cent is possible due to the budget surplus as at the half of the first six-month period, said Finance Minister Plamen Oresharski.

The budget surplus exceeded 2,000 million leva as at June 30, The shortfall in the collection of VAT has been overcome and VAT revenues are 20 per cent up the target figure, Oresharski further said.

Economy and Energy Minister Peter Dimitrov explained that by reducing the tax burden by 3 per cent as of October 1 the Government meets its commitment stipulated in the 2007 National Budget Act.

In his view by introducing a flat tax for individuals' incomes the ruling coalition gives a clear signal to foreign investors for simple taxation of citizens' incomes. This will undoubtedly stimulate foreign capitals and will result in having more jobs and higher incomes, Dimitrov further said.

The macroeconomic framework of the 2008 budget includes, as approved Sunday, economic growth of 6 per cent, inflation of 3.7 per cent, current account deficit of 17.2 per cent, revenues of 24,500 million leva, which accounts for some 42.5 per cent of the gross domestic product and expenditures of 23,000 million leva.

In 2008 salaries in the public-financed sector will be increased  by up to 10 per cent for a second consecutive year. A possibility for additional growth of incomes will be provided by optimizing the administrative structures, the governmente said.

The government's priorities for next year include increase of the capital expenditures for upgrading the infrastructure and a more adequate income policy. Health care and education will also  be among the priorities.

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