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RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSF #1216/01 2841145
ZNR UUUUU ZZH
R 111145Z OCT 07
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC 4395
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

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