Economic and Social Development Pact Signed in Bulgaria

By Petar Kostadinov, The Sofia Echo

October 2, 2006

The pact on social and economic development in Bulgaria promises good-co-operation between the state, business and trade unions. Bulgaria will enter the European Union on January 1 2007 with an Economic and Social Development Pact (ESDP), signed by the Government, trade unions and employers’ organisations.

This is the first time in Bulgaria ’s post-communist history that such an agreement has been signed.

The ESDP envisages the economic and social development of Bulgaria for the period up to 2009.

The pact was signed on September 26 at the Cabinet office by Prime Minister Sergei Stanishev; for the trade unions by Confederation of Independent Trade Unions in Bulgaria president Zhelyazko Hristov and by Konstantin Trenchev, president of the Podkrepa Confederation of Labour; and for employers by Bulgarian Industrial Association president Bozhidar Danev, Bulgarian Chamber of Commerce and Industry president Bozhidar Bozhinov, Union for Private Economic Enterprise president Borislav Borissov, Vuzrazhdane Union of Private Bulgarian Entrepreneurs vice president Manol Velev, Bulgarian Industrial Capital Association Governing board chairman Vassil Velev, and Confederation of the Employers and Industrialists in Bulgaria co-chairpersons Sasha Bezuhanova and Ivo Prokopiev.

After the ceremony, Stanishev described the Pact as a “social contract between the Government and the social partners on the key economic and social development priorities and policies that should lead this country to successful integration into the common European market and policies ensuring Bulgaria’s competitiveness and economic growth, as well as a good standard of living and income to Bulgarian citizens”. The document, which is a result of eight months of negotiations, is supposed to represent the compromises made by the three parties for the sake of Bulgaria ’s economic development and represents the balance of interests of all parties.

Obligations such as introducing the “silent agreement principle,” accelerating the introduction of e-government and building of integrated information systems, reducing corporate tax and the expense recognition for investments in preserving the environment, were described by employers as positive signs.

The Pact provides for reduction of direct taxes, simplification of regulatory systems, tax incentives for investment in human resource development (education and qualification), and tax deductibility of investment in environmental protection. Food vouchers for employees will be exempt from taxes and social insurance contributions.

“According to the pact, the problem with seniority bonuses will be solved through a wage formation ordinance,” Hristov told the news conference. “The bonuses will be kept in the form of pay for employment service and professional experience, but they will no longer be portable on change of occupation.” The existing seniority bonuses will stay and previous production experience in another enterprise will count as well, but it has be in the same or similar economic activity. Last year the International Monetary Fund said that seniority bonuses should be abolished because they were a form of discrimination against younger workers. At the time, this was strongly opposed by the trade unions. The union said then that without seniority bonuses, older workers would be in a bad position because their wages would effectively decrease.

Employers and trade unions will negotiate the rate of wage supplements for difficult work and production experience.

The unions insisted that Finance Minister Plamen Oresharski agree to a minimum monthly wage of 180 leva next year. On behalf of business, Danev said that the minimum wage had to be based on the average wage and should not be less than 50 per cent of it, so as to provide an incentive for qualification of Bulgarian workers. According to National Statistical Institute ( NSI ) data, the average wage in the public sector in the second three months of 2006 was 345 leva. Annually, before the end of the first quarter, the social partners will agree on a recommended wage growth index.  Negotiations will be held at industry and enterprise level, and labour productivity and the labour market situation will be taken into account. However Oresharski’s ministry rejected a demand to exempt food vouchers from taxes and social insurance contributions.

The pact says that social pensions for socially disadvantaged people would be 40 per cent of the poverty line, and the minimum contributory-service and retirement-age pension will be half of the minimum wage.

A new Settlement of Labour Disputes Bill will be drafted, to guarantee the right to strike and the establishment of industrial courts.

An aim set in the document envisages the creation of 240 000 jobs, which according to the Pact would decrease unemployment to less than nine per cent by 2009. NSI data show that in June this year 2 275 612 Bulgarians out of about 7.7 million were employed both in the public and private sector. Of these 2 275 612 Bulgarians, 694 474 were employed in the public sector.

Hristov and Trenchev said that trade unions would not stop insisting that the social and health insurance burden continue to be shared between employers and employees next year in the current ratio of 65 to 35. The employers did not agree that the pact set a fixed formula with percentage restrictions, as provided for by the initial version of the document. The requirement of income outpacing inflation will apply to the enterprise sector and to the public-financed sector. The social partners must draft jointly an ordinance on wage formation, to enter into force from 2007, providing for mechanisms for collective bargaining and internal wage rules at enterprises, according to which wages will be fixed depending on the quality and quantity of work, the complexity of work, and production experience. The pact will not make a provision on the sharing of the social insurance burden and on the social insurance contributions because the social partners did not reach agreement on that. Parliament is expected to address this matter annually through the Budget Act.

The pact does not have specific figures written in it but outlines a general perspective of the country’s development. Prokopiev said that this was because of the complicated situation in Bulgaria because of its transition from currency board to EU membership.

Employers insisted on a cut in corporate tax. Currently the tax is 15 per cent and employers insisted on a rate of less than 10 per cent.

“This is a risk which would pay off time and again because it would stimulate tax collection, income increase and the creation of new jobs as well as more foreign investments in Bulgaria ,” Prokopiev said.

As an example, Prokopiev cited National Social Security Institute data saying that revenue collected so far added up to 600 million leva more than projected. This, according to employers, was because many companies had come out from the grey sector of the economy.    

The main aims of the Pact were described by Stanishev. He said that the document was expected to bring the country to successful integration in the EU labour market and good living standards and incomes for the people. In view of these goals, the date of the signing was chosen to coincide with the release of the European Commission report on Bulgaria ’s readiness to join the EU on January 1 2007 .

“Opportunities that EU membership gives may be achieved only after clearly laid down aims and instruments for their implementation,” Stanishev said.

The pact showed Bulgaria ’s readiness to follow the European social model and was a sign of economic, social and management culture, the unionists said.