After a turbulent year and a total of three general elections, Bulgaria finally has a government. Much like the new power in Germany, it is far from a stable, single-party rule but rather a patchy, colorful coalition of small powers and former enemies. It is led by a charismatic leader who came to political prominence only in 2021 and includes a myriad of new faces, as well as some older hard-hitters from more traditional parties.
This novelty, however, does not mean that the new government is protected from all the traps laying for whomever attempts to rule the country after a decade of Boyko Borissov in power. Thus the goal of this piece is to outline the main dangers and pitfalls that the new cabinet led by Kiril Petkov can fall into.
- Do not mess with the flat tax. The new government came to power on a promise of sweeping reforms, including significant expansion and redefinition of social policy and improving the standard of living of those whose wages depend on the state budget. It can be tempting to draw extra revenue to finance those reforms by increasing taxation and changing Bulgaria’s current flat 10% rates on both corporate and income taxes. This might even bring in some extra political support from parties on the left and trade unions that have long seen the flat rates as unjust and an obstacle to expanding the welfare state. The flat tax, however, has been a hallmark of the Bulgarian economic and developmental model and changing it at a time of high economic (and policial) uncertainty will be disastrous for many businesses and households still recovering from the Covid-induced crisis. Any increase would also negate one of the most important advantages that the country has as attraction to new investment compared to more mature Eastern European economies. Therefore, it would be best if the new government refrains from reforming this most important macroeconomic anchor as far as taxation is concerned.
- Do not overdo new social policy. The Petkov government (or at least some of its members as part of the previous caretaker cabinet) has already increased pensions by a wide margin and intends to extend support to households to deal with rising energy prices and increase pay for medical staff. This is, however, done in a year of unexpectedly large tax income and inflation, which both make extending public spending easier as it is, especially in the long run. While new and extended social programs almost universally sit well with voters, and, if done right, may even help alleviate the most unfortunate living conditions, those come at a cost, and the time when budget deficits and new debt do not matter will be over pretty soon. This is not to say that new – and well-targeted – social programs are not needed, but those need careful consideration and the pitfalls of populism should be avoided.
- Do not rely on EU funds to do your job. This is a particularly easy trap to fall into, especially in times of Recovery and resilience funding and wide-open EU wallets. EU money has never been easier to come by, and unlike rising local tax revenue it does not come with negative political consequences when it is necessary to fund the expansion of a highway. They do however come with strings attached, and their stated purpose may or may not align with national interests and priorities. In the past EU money has been a prime source of corruption and funneling it to political allies should be avoided at all costs. They should also never be used to finance fundamental government functions such as social assistance, as has been done before. EU funding may provide resources for public investments that will support GDP growth, but the big challenges are still related to internal weaknesses – like state capture, corruption and weak rule of law, that should be promptly addressed.
- Do not underestimate your own fragility. This government, unlike previous ones, is a mixed, broad coalition of often conflicting interests, including socialists, greens, conservatives (and some currently unknowns). Thus it will very likely be prone to internal strife and difference of opinion. Given the cycle of general elections in 2021, it also seems likely that any party that sees an opportunity to win more seats in a snap election would not hesitate to retire from the coalition in an attempt to gain more support. Therefore, preserving the cohesion of the coalition and maintaining a functioning government while at the same time making compromise should be the first priority, sweeping reform – second. This does not mean that any change should be avoided in order to prevent rustling of feathers, but rather that any major reform must be the fruit of the entire coalition’s work, not just some ambitious minister.
- Do not think that you are out of the woods yet. Solving 2021’s political crisis does not make the economic condition magically better, nor does it remove the threat of Covid-19 in EU’s least vaccinated nation. On the contrary – managing the healthcare crisis and preventing further lockdowns should be the first priority, and failure to address this will likely result in a very short period in power.
This short list does not, of course, cover all the dangers in front of Bulgaria’s new government – those are, simply, the clearest ones.
Given that the Petkov cabinet has been in power for just over a week it is still very early to predict what direction it will take, or what style of government it will follow. Its possible points of failure, however, are more clear.