Almost exactly two months ago, I cited Bulgaria as an example of a nation that was in trouble because of profligate politicians. And I used IMF data to show how the burden of government spending had dramatically increased over the past few years.
So what do the bureaucrats at the IMF think about Bulgaria’s fiscal situation?
Well, they just released the bureaucracy’s Article IV Consultation, which is basically a periodic assessment of a country’s economic policy.
You probably won’t be surprised to learn that the IMF thinks that higher taxes are the most appropriate answer to an over-spending problem.
Addressing spending pressures from aging, defense, infrastructure, and the energy transition will require fiscal space. Furthermore, as expectations for quality public services grow with income convergence, more revenues are needed to meet rising demands. …Addressing these pressures requires…a sustained increase in revenues—closer to peer levels and commensurate with expected scope and quality of public services. …the revenue-generating capacity of the flat-tax regime appears insufficient to meet increasing demands for quality services. In the medium term, more revenues could be raised by increasing tax rates for both personal and corporate income and moving to progressive income taxation… Pension system…sustainability needs to be strengthened by increasing contribution revenues, with a key measure being removing the cap on insurable income.
The basic message (and the one the IMF also shared in 2022) is that politicians who spent too much should be rewarded with more tax revenue.
Even if it means getting rid of the flat tax. Even if it means busting the cap on payroll taxes (leftists in the U.S. have the same agenda).
The report even included these two charts, which have an implicit premise that Bulgaria should copy the fiscal policies of stagnant, high-tax welfare states elsewhere in Europe.
As your digesting this information, keep in mind that IMF bureaucrats get tax-free salaries.
Maybe, just maybe, they wouldn’t be so quick to recommend awful policies if they actually knew what it was like to pay taxes rather than consume taxes.
But I’m digressing. The good news is that Bulgarian officials don’t want to commit suicide, as noted in the report.
The authorities agreed with many of staff’s recommendations but do not support moving to a progressive tax regime or removing the cap on maximum insurable income.
But the bad news is that these presumably are the same Bulgarians who were in – or involved with – government over the past eight years when the spending burden increased so dramatically.
So while I don’t like the IMF’s knee-jerk support for higher taxes, I’m also not supportive of the current Bulgarian government.
Though I should not that the country got a new Prime Minister back in January, so maybe there will be a conversion to Milei-ism (an approach that is needed in almost every country). I’m not expecting that, but it’s good to hold out some hope.
