ZAGREB, October 23, 2019 - Finance Minister Zdravko Marić said on Wednesday that the budget for next year, which the government is expected to put forward next week, would be balanced regardless of the announced increase in the base pay for government and public sector workers, but he would not say if the job complexity index for education workers would be increased.

The minister said the government was working on a budget that included a 6.12% increase in the base pay of government and public sector employees, to be implemented in three rounds.

He noted that the increase would be compensated for by giving up on the planned reduction of the standard 25% VAT rate to 24%.

The pay increase will not reflect on the public debt or the budget's balance, Marić said.

Asked if he was satisfied with savings made in some sectors, he said that he was satisfied with the overall fiscal policy results.

Asked if teachers who are striking because of dissatisfaction with their wages and the government's wage policy for the public sector, could count on an increase in their job complexity index before the adoption of the budget for next year, the minister said: "We'll see", adding that the government had raised the base pay by 18% and that by the end of its term that increase could exceed 20% with tax reliefs.

He admitted that there was dissatisfaction with the regulation on job complexity indices and that the matter should be analysed.

Last week, the minister said that the announced increase in wages for government and public employees would cost annually between 1.1 and 1.2 billion kuna.

Speaking of tax reliefs, he said that measures such as raising the non-taxable income would increase the number of employees whose income was not taxed by 75-80,000 and that currently the income of 1.7 million people was not taxed.

The financial effect of raising the non-taxable income would amount to 500 million kuna, the minister said, adding that that money would remain in taxpayers' pockets. As for the fact that the amount would be lost on local government units, Marić said that compensation measures would be defined for local government units, which have income tax as one of the main sources of their income.

Postponing the reduction of the VAT rate by one percentage point will leave between 1.7 and 1.8 billion kuna in the state budget, the minister said.

More budget news can be found in the Business section.

ZAGREB, October 23, 2019 - Finance Minister Zdravko Marić said after a three-hour meeting of the ruling coalition on Tuesday evening that the coalition was agreed that the budget and public finance framework for next year was good and should be maintained.

"We are all agreed, I believe that all members of the coalition and the parliamentary majority agree that the budget and public finance framework for next year is good and should be maintained," said the minister.

The ruling coalition discussed at its meeting a budget revision for this year, the 2020 budget and the fourth round of the tax reform.

Asked if there was room in the budget to increase wages as much as striking teachers' unions wanted, Marić said: "We must be very clear, you are aware of the restrictions for next year's budget, we have to stick to them. The overall framework is sustainable and we are not bringing it into question. It is a question whether there is additional room for additional increases. Everything should be in line with possibilities."

Asked again if this meant that the six percent wage increase offered to teachers was the government's maximum offer, the minister said: "That's right".

As for an increase in the minimum wage announced by Prime Minister Andrej Plenković earlier in the day, Marić said he did not have any specifics and that they would be known after a government session.

He said that the dialogue on the budget and taxes would continue in the coming days, and that the related legislation should be formulated by the government next week and then forwarded to the parliament in the first half of November.

The minister said that the government spent as much as it earned and that any surplus would be directed into the business sector.

The minister also said that he believed the Croatian People's Party (HNS), a junior partner in the ruling coalition, would support the budget.

As for criticism from Milan Bandić, the mayor of Zagreb and leader of the Labour and Solidarity Party, which is part of the parliamentary majority, that local government units would again lose a lot in the fourth round of the tax reform, Marić said that that would be discussed at a later stage.

He said that the government was not giving up on measures for young people and would put them forward as planned.

More budget news can be found in the Business section.

ZAGREB, October 21, 2019 - Croatia recorded a consolidated general government budget surplus of 992 million kuna in 2018, which is 0.3% of GDP, which is the second year in a row that a budget surplus was generated while the public debt to Gross Domestic Product (GDP) was reduced to 74.8%, according to the revised figures released on Monday by the National Bureau of Statistics (DZS).

The report on the Excessive Deficit Procedure and general government debt to GDP released on Monday indicates a consolidated general budget surplus in 2018 of 992 million kuna or 0.3% of GDP whereas in 2017 it was 2.9 billion kuna, or 0.8% of GDP.

The latest data has been revised up from the April report when DZS reported that the consolidated general budget surplus for 2018 amounted to 758 million kuna or 0.2% of GDP.

The biggest impact on the amount of 2018 surplus was due to the further fall in the government budget balance compared with the previous year from 2.29 billion kuna to 192 million, as a result of positive economic developments, DZS's report said.

The 2018 surplus was mostly driven by the considerably improved financial result of extrabudgetary beneficiaries and public companies and by increased tax revenues.

In 2018, taxes on production and imports totalled 76.7 billion kuna, an increase of 7.2% on the previous year.

Investments also grew, increasing by 13.36 billion kuna or 32.6% more than in 2017. The surplus is also the result of a decrease in interest rates, and interest expenses amounted to 8.89 billion kuna or 9.1% less than in 2017.

At the end of last year, consolidated general government debt was 286.1 billion kuna, or 74.8% of GDP, while in 2017 it was 285.84 billion kuna, or 78% of GDP. That is its lowest level since 2012 when it accounted for 69.4% of GDP.

More economic news can be found in the Business section.

ZAGREB, October 17, 2019 - Finance Minister Zdravko Marić said on Wednesday that the planned pay rise for state administration and public sector employees would cost between 1.1 billion and 1.2 billion kuna annually.

Marić said that the planned increases were expected to take effect at the beginning, in the middle and in the second half of next year, adding that during the term of this government the base pay increase for state administration and public sector employees would be around 18.3 percent.

In an annual report on his government's work submitted to Parliament on Wednesday, Plenković said that the government would offer a 6.12% wage increase to all state administration and public sector employees in three 2% rounds, which was why the planned reduction of the standard 25% VAT rate by one percentage point, set for January 1, would be postponed.

Marić said that the government would also tackle the issue of the job complexity index and bonuses defined by different contracts, adding that a detailed analysis of civil service jobs would be carried out.

Speaking of the plan to increase non-taxable income from 3,800 to 4,000 kuna, the minister said this would increase the number of taxpayers not subject to income tax by 75-80,000. He noted that 1.7 million citizens were currently not subject to income tax.

Marić said that about one million other employees would also be subject to higher non-taxable income and that the financial effect would depend on their wages.

The total effect of this measure is 500 million kuna, which should end up in citizens' pockets, while local government will be left without this money. Marić announced compensation measures for local government units. The delay in reducing the VAT rate by one percentage point will leave between 1.7 billion and 1.8 billion kuna in government coffers, the minister said.

Marić said that despite the planned measures there would be no departure from the set economic and fiscal policy guidelines, adding that the 2020 budget would be balanced in that regard.

More budget news can be found in the Business news.

ZAGREB, October 2, 2019 - Finance Minister Zdravko Marić said on Wednesday that the government is always prepared for talks with teachers' unions, which have announced strike action in elementary and secondary schools for October 10.

The unions have said that the strike will last until their demand is met for a 6% increase of the job complexity index in the education sector. They called out the government because even two weeks after talks were held the government has still not presented its stance.

Speaking to reporters ahead of an inner cabinet meeting, Marić said that the government is always prepared for talks. "My message to the unions is: I will say what I have to say at a meeting," he said.

Marić said that the unions could count on a frank and transparent discussion with him, adding that he will first tell the unions what he has to say to them and then inform the public.

Marić announced that in the coming days a meeting would be held with government employees' unions as well as talks with public sector unions. "There will be meetings not just with teachers and health workers, but also with others who wish to hear what we have to say," Marić said.

Asked whether his job was being made difficult by ministers who defend unions in the media, he said that he doesn't meddle in the work of his colleagues. "Each one of them and each one of us are working the way we think we should be," he said.

He commented on an announcement by Health Minister Milan Kujundžić that funds to settle debts to drug wholesalers would be secured through a budget review, saying that the budget review is generally made at the end of the year.

"Until now most of the funds in budget reviews went to the health sector. There will be a review at some point but I would not connect it to liabilities and debts of the health sector," said Marić.

He said that budget funds were allocated to the health sector over the past few years, recalling a financial injection of 1.5 billion kuna in 2017 and an additional 500 million kuna last year and the 1 percentage point of health contributions this year. "We provided funds from the revenue side. I am not the one that needs to answer for what happened on the expenditure side," Marić concluded.

More public finance news can be found in the Politics section.

ZAGREB, September 12, 2019 - Croatian government budget revenues reached 65.1 billion kuna in the first half of 2019, an increase of 8.5% on the same period in 2018, while expenditures increased by 8.3% to 66.9 billion kuna, according to a report on budget execution adopted at a government session on Thursday.

The budget deficit was 1.88 billion kuna, roughly the same as last year.

Presenting the report, the State Secretary at the Ministry of Finance, Zdravko Zrinušić, said that positive economic developments had continued in the first half of the year, with real GDP increasing by 3.1% compared with the first half of 2018.

Tax revenues increased by 4.8% to 37.1 billion kuna, with VAT revenues going up by 4.7% to 23.5 billion kuna. This was mainly due to increased spending as a result of positive economic trends, Zrinušić said, recalling that additional tax reliefs had become effective at the start of the year.

Profit tax revenues reached 5.3 billion kuna, up 8.3%, and revenues from special taxes and excises rose by 2.2% to 7.3 billion kuna.

On the other hand, revenues from contributions declined by 2.2% to 11.9 billion kuna, which Zrinušić said was due to the effects of the tax reform at the start of the year, namely the abolition of contributions on employment and safety at work. The health insurance contribution was increased at the start of the year, but it does not count as a budget revenue, the report notes.

The 8.3% rise in expenditures was due to the better absorption of EU funds. Expenditures financed by EU funds reached 6.2 billion kuna, an increase of 1.8 billion kuna or 42% on the first half of 2018, the report says.

More economic news can be found in the Business section.

ZAGREB, August 1, 2019 - The Croatian government projects budget revenues for 2020 at 141.6 billion kuna and expenditures at 144.3 billion kuna, Finance Minister Zdravko Marić said while presenting the Economic and Fiscal Policy Guidelines 2020-2022 at a Cabinet meeting on Thursday.

Marić said that the projections were a continuation of the policy aimed at ensuring the sustainability of public finance, economic growth and increasing the citizens' living standards.

Real GDP growth was forecast at 2.8% in 2019, 2.5% in 2020 and 2.4% in 2021 and 2022.

Prime Minister Andrej Plenković said that the projected rates were realistic and sound. He said that the focus of the Guidelines was on further strengthening fiscal sustainability and economic growth, adding that reform activities would be aimed at strengthening the long-term potential of the national economy.

He announced effective use of budgetary funds, with strict control of expenditures, and said that the faster absorption of EU funding would help accelerate growth. He also announced further efforts to improve the business climate.

Marić said that domestic demand and personal consumption would be the main drivers of growth in the entire three-year projection period, citing a rise in economic sentiment, improved credit terms, positive labour market trends and tax changes that leave the citizens with more disposable income.

He also mentioned a positive contribution from investment, which he said generated one percentage point of total growth on average, and added that further efforts would be made to improve the business climate and encourage private investment.

The finance minister warned that with stable exports growth rates imports were also growing and that therefore he expected a negative net contribution from exports in the projection period.

For 2020, government budget revenues are projected at 141.6 billion kuna. The Guidelines say that revenues are expected to rise by 2.6% to 145.3 billion kuna in 2021 and by 2.4% to 148.7 billion kuna in 2022. These movements are based on the expected economic growth and the fiscal impact of further tax cuts.

Marić noted that budget expenditures were also growing at a slower rate that GDP.

The most important changes with a fiscal impact on government budget revenues relate to changes to Value Added Tax (VAT), notably a reduction of the general VAT rate from 25% to 24% as of 1 January 2020 and a reduction of VAT on food in the hospitality industry to 13%.

The latest round of the tax reform provides for changes to profit tax, under which income subject to a profit tax of 12% will be raised from 3 million kuna to 7.5 million kuna. In that way an additional 10,000 businesses, or a total of 93% of businesses liable to profit tax, will be subject to the 12% rate.

The government also expects a considerable impact on budget revenues from the absorption of EU funding, which is expected to continue to grow.

As for budget expenditures, they are forecast at 144.3 billion kuna for 2020. Expenditures financed from general revenues and receipts, contributions and special-purpose receipts are projected at 113.6 billion kuna, 2 billion kuna higher than for the current budget.

At the same time, expenditures financed from other sources of financing, which do not affect the level of the budget deficit, are projected at 30.7 billion kuna, up by 1.9 billion kuna.

In 2021, total expenditures are planned at 146.1 billion kuna, an increase of 1.8 billion kuna compared with 2020. Expenditures financed from general revenues and receipts, contributions and special-purpose receipts are expected to be 2.2 billion higher, while those financed from EU funds and other sources would be reduced by 369 million kuna. In 2022, expenditures financed from EU funds and other sources are expected to be reduced by 569.1 million kuna.

The reductions follow from the dynamics of implementation of EU-funded projects from the programme period 2014-2020 which will be in final stage. Contracting for projects that will be funded from EU funds in the next programme period 2021-2027 is yet to begin. As a result, total expenditures in 2022 are projected at 147.5 billion kuna.

The Guidelines say that the public debt to GDP ratio in 2019 is expected to decrease by a further 3.3 percentage points to 71.3% of GDP. In the medium term, the ratio should continue to fall by 3.1 percentage points annually to 68.3% of GDP in 2020, 65.3% in 2021 and 61.9% of GDP in 2022.

The general government budget is expected to run a deficit of 0.2% in 2020, while surpluses of 0.2% and 0.6% are forecast for 2021 and 2022 respectively.

The inflation rate is projected at between 1% and 1.5%.

More economic news can be found in the Business section.

ZAGREB, July 4, 2019 - The budget transparency of all 576 local government units, expressed with the number of budget-related documents published on their websites, is 3.9 of the maximum number of 5, it was said at a conference on the budget transparency of counties, towns and municipalities in the period from November 2018 to March 2019, organised by the Institute of Public Finance (IJF) in Zagreb on Wednesday.

Budget transparency has improved in relation to the previous survey, when it stood at 3.52 budget documents, but there are still local government units that do not make any of their documents public, it was said.

Presenting the latest survey, Mihaela Bronić of the IJF said that the average number of budget-related documents published by county authorities this year was 4.9 while towns published an average 4.3 budget-related documents and municipalities 3.8 budget documents.

For the sake of comparison, the average number of budget-related documents published by counties in 2018 was also 4.9 while that of towns was 4 and of municipalities 3.3.

"It should be noted that despite positive trends, only counties comply fully with the law. Conversely, there are many towns and municipalities that do not published even those documents they are obliged to publish under the law," Bronić said.

Last year, local government units spent 40 billion kuna.

Budget transparency was measured with the number of published key budget documents on local government units' websites.

Transparent budgets enable citizens to obtain full, correct and timely information on local budgets, IJF director Katarina Ott said and called on citizens to participate in that activity as much as possible if they wanted taxpayers' money to be spent prudently.

She expressed hope the relevant ministries would try to regulate and control local government units more adequately.

The State Secretary at the Public Administration Ministry, Darko Nekić, said that since the end of last year the ministry had been analysing data on how successful local government units were and that the process would last until December 2020.

After the analysis, a proposal will be made for a new territorial set-up or for changing the existing one, Nekić said.

More local government news can be found in the Politics section.

ZAGREB, May 16, 2019 - Finance Minister Zdravko Marić said on Thursday that tax revenues had increased by 3.3% in the first quarter of the year while budget expenditures increased by about 6%, noting that the somewhat higher rate of expenditures compared to revenues was usual for that time of the year.

Addressing a press conference, Marić said that revenue from VAT and profit tax increased by 3.3% while excise taxes increased somewhat "more strongly." He underscored that he was particularly pleased with contributions for pension insurance, which recorded an increase in revenue of over 5%.

When it comes to expenditures, it increased by about 6%, with Marić noting that the January-March period is always "the worst" in the budget sense.

Responding to reporters' question as to whether VAT would be decreased from 25% to 24%, Marić recalled that that has been regulated by law and will enter into force as of 1 January 2020. "We included that in the law and it was passed in parliament for VAT to be reduced from 25% to 24% as of 1 January 2020," he said.

Marić would not comment on an idea by former central bank governor Željko Rohatinski, who said that the Uljanik shipbuilding company could be salvaged by printing money, but said that that was a question for the central bank.

Thursday's issue of the Novi List daily ran an interview with Rohatinski who said that "we can conduct an active monetary policy and salvage shipbuilding, despite being told that signals from abroad say that isn't possible."

The article also notes the reaction of the bank's incumbent governor, Boris Vujčić, who said that it would be best for Rohatinski to explain just how he would achieve that, as well as noting that Croatia currently has a surplus liquidity of 36 billion kuna.

More budget news can be found in the Business section.

ZAGREB, April 23, 2019 - Croatia recorded a consolidated general government budget surplus of 758 million kuna in 2018, which is 0.2% of GDP, and a consolidated general government debt of 284.7 billion kuna, which is 74.6% of GDP, according to figures released by the National Bureau of Statistics (DZS) on Tuesday.

It was the second year in a row that Croatia had run a consolidated general budget surplus, but it was lower than in 2017, and the general government debt to GDP ratio continued to decline.

The DZS submits a report on general government budget deficit and debt to the European Commission, namely to Eurostat, twice a year, in April and October, using the ESA 2010 methodology and the Manual on Government Deficit and Debt.

Last year, Croatia's consolidated general government surplus was 758 million kuna, or 0.2% of GDP, while in 2017, it was 2.9 billion kuna, or 0.8% of GDP.

Previously, Croatia recorded budget deficits, which totalled 3.4 billion kuna, or 1% of GDP, in 2016 and 10.8 billion kuna, or 3.2% of GDP, in 2015.

The 2018 surplus was the result of a further fall in the government budget balance compared with the previous year, from 2.29 billion kuna to 191 million, as a result of positive economic developments, the DZS said.

The surplus was mostly driven by the considerably improved financial result of extrabudgetary beneficiaries and public companies and by increased tax revenues.

In 2018, taxes on production and imports totalled 76.8 billion kuna, an increase of 7.2% on the previous year.

The surplus was also spurred by a decline in interest expenses, which reached 8.88 billion kuna, down by 9.1% from 2017. By comparison, interest expenses were 11.81 billion kuna in 2015, 10.83 billion kuna in 2016 and 9.77 billion kuna in 2017.

Investment grew by 33.8% from 2017 to 13.21 billion kuna.

The DZS noted that last year 2.53 billion kuna was paid for enforced guarantees for the shipyards, which led to the reduction of the surplus.

In 2018, the primary general government surplus was 9.64 billion kuna, or 2.5% of GDP, which is 23.9% less than in 2017.

At the end of last year, consolidated general government debt was 284.7 billion kuna, or 74.6% of GDP, while in 2017 it was 284.3 billion kuna, or 77.8% of GDP. In 2016, debt was 282 billion kuna, or 80.5% of GDP, down from 284.4 billion kuna, or 83.7% of GDP, in 2015.

Despite the debt increase, the share of consolidated general government debt in GDP has continued to decline in the last four years, falling by 3.2 percentage points of GDP from 2017 to 74.6% of GDP in 2018.

In nominal terms, the debt increased by 379 million kuna or 0.1%.

The rise in net borrowing (2.7 billion kuna) was almost offset by negative exchange rate differences (minus 2.3 billion kuna).

The DZS noted that the level of consolidated general government debt at the end of 2016 and 2017 was about 1 billion kuna higher than the data presented in the October 2018 notification due to further alignment with the ESA 2010 methodology.

More economy news can be found in the Business section.