Following large-scale protests and significant public criticism, the draft State Budget of the Republic of Bulgaria (“the Draft Budget”) for 2026, as well as the updated medium-term budget forecast (“MTBF”) for the period 2026 - 2028, were withdrawn by the government. This was intended to be the first national budget prepared entirely in euro, in view of Bulgaria’s planned accession to the eurozone on 1 January 2026.
Higher tax and social security burdens, as well as the increased government debt, were the main elements that triggered the controversy. Below are the key proposals from the withdrawn Draft Budget:
1. The doubling of the tax on dividends and liquidation quotas from 5% to 10% proved to be the largest tax increase since 2010. Various organizations expressed the view that this measure would negatively affect the country’s competitive advantages for foreign investors and would divert capital towards jurisdictions with lower taxation. The governing majority justified the measure as a tool to limit the “shadow” economy, but economists argued the effect would be the opposite. Well-founded forecasts suggested that the change would lead to companies refraining from distributing profits as dividends and instead “redirecting” cash flows by distributing them in other forms.
2. An update of the minimum wage to EUR 620.20 had also been proposed - a change that was generally perceived by consensus. At the same time, however, the Draft Budget provided for a controversial increase of the maximum social security income to EUR 2,352, as well as of the minimum social security income, which was aligned with the minimum wage at EUR 620.20.
3. Regarding social and health insurance contributions, an increase in the contribution to the “Pensions” fund of the State Social Security (SSS) system by 2 percentage points (“pp”) was expected from 1 January 2026, followed by an additional increase of 1 pp from the beginning of 2028. The amendments, however, were sharply criticized by employers’ organizations, which warned of a reduction in net incomes in the private sector, incentives for a larger “shadow” economy, and an additional burden on businesses. As a result, the effective tax and social security burden (income tax plus all mandatory contributions) for salaries up to the maximum social security income would have reached 43.2%, compared to 41.3% at present.
4. The maximum amount of new government debt that could be assumed during the year under the State Debt Act was set at EUR 10.44 billion under the withdrawn Draft Budget. Of this amount, up to EUR 3.2 billion was expected under the SAFE instrument in connection with planned investments to strengthen the European defence industry.
5. The budget balance under the Consolidated Fiscal Programme (CFP), expressed as a share of GDP for each year of the 2026–2028 forecast period, envisaged a deficit of 3.0% of GDP. On 25 November the European Commission (“EC”) warned of a risk that Bulgaria’s budget plans for 2026 might not comply with EU requirements. According to the EC, the national fiscal policy would fail to maintain the budget deficit below 3% of GDP.
The budget crisis emerged just before the official entry of Bulgaria into the eurozone on 1 January 2026. The governing majority pledged to resume tripartite negotiations (between the state, employers and syndicates) and to present a new budget by the end of the calendar year. Without doubt, resolving this issue as swiftly as possible is of great public importance - not only for the state and businesses, but also for the civil society. Until the adoption of a new State Budget for 2026, applicable shall remain the one for 2025.
