site.btaIncome Indexation through Extension Budget Undermines Budgetary Legislation Principles, Fiscal Council Says

The inclusion of social policies in the so-called 2025–2026 Extension Budget Bill, such as the indexation of incomes of employees in the public sector by the annual inflation rate, undermines the principles of budgetary legislation and creates a dangerous precedent in the country’s budgetary policy, the Fiscal Council said Friday in a comment on the 2026 Revenue Collection and Expenditures Bill.

According to the institution, by its legal and economic nature an extension budget should be a temporary measure with a limited scope, ensuring solely the continuity of state payments until the adoption of a regular budget law.

Unlike previous extension budgets, which strictly followed the structure of the preceding year, the current law goes beyond these limits. Through it, substantial changes are introduced on the expenditure side that are not aligned with long-term fiscal sustainability and circumvent the normal debate on budgetary policy, the Fiscal Council said.

The use of an extension mechanism to introduce new social policies compromises the principles of the Public Finance Act and turns a temporary instrument into an alternative to a regular budget, the comment reads.

Regarding the increase in the minimum wage for 2026 and the indexation of incomes to inflation, the institution noted that staff expenditure for 2025 had already been indexed, with growth reaching around 20%, which in practice leads to overcompensation relative to actual price dynamics. According to the Fiscal Council, using end-of-period inflation (a point-in-time value) is incorrect, and the proper approach requires using average annual inflation, measured by the Harmonised Index of Consumer Prices in the context of euro area membership, rather than the national consumer price index.

In addition, the institution believes it would be appropriate to use forecast inflation for 2026, rather than the inflation that will be recorded at the end of 2025.

A 10% wage increase in the public sector generates an additional structural expenditure of EUR 840 million. If a more moderate indexation (around 5%) is applied, the additional pressure on the budget amounts to EUR 420 million per year, or an average of EUR 35 million per month, the material said.

The Fiscal Council also pointed out that there is a serious risk of overestimating revenues for 2026, with a deviation ranging between EUR 3.5 billion and EUR 4.7 billion.

The 2026 Revenue Collection and Expenditures Bill fulfils its short-term function of ensuring the State’s financial continuity. At the same time, it creates structural tension within the fiscal framework by introducing permanent expenditures through an instrument of a temporary nature, the material said.

The inclusion of social policies (such as indexations) in the extension mechanism compromises the principles of budgetary legislation. Under the Public Finance Act, its role is that of a temporary measure to ensure the continuity of state payments, not an alternative to budgetary policy. A precedent is being set whereby economic imbalances are compensated through the budget, although they should be addressed through structural reforms, the Fiscal Council added.

Earlier this week, the National Assembly adopted the so-called extension budget at second reading. Between the first and second readings of the bill, MPs approved a proposal by Continue the Change - Democartic Bulgaria MP Assen Vassilev for a one-off indexation of wages equal to the accumulated annual inflation as of December 31, 2025, for all public-sector employees who are not on the minimum wage.