The wasteful spending of public money in Croatia is so widespread that it is difficult to select the worst case: from doubled traffic bollards to billions spent on companies losing money, which examples are your favourites? The Lipa taxpayer association will present the results of its latest project on Tuesday – The Black Book of Public Money Expenditure for 2018 – and organise a round table discussion with prominent economists, reports Poslovni.hr on March 11, 2019.

In the last year, Lipa has collected some of the most interesting cases of wasteful spending of public money in Croatia, such as the so-called free public transportation in Zagreb during the Advent period and endless amounts of public subsidies given to failing companies.

“The cases of non-transparent and inefficient spending of taxpayers' money are commonplace in Croatia. The way the authorities, experts and voters approach this subject will represent the basis which will determine our future. If the irresponsible spending of taxpayers' money continues at this level of intensity, it's clear that Croatia has a negligible chance of joining the community of developed and prosperous European Union countries,” the Lipa taxpayer association said in its announcement.

Based on the analysis of the selected cases, Lipa has drafted several recommendations for better public money management, which will also be presented at the event.

The presentation of the Black Book for 2018 will be held on March 12, 2019, at the Croatian Journalism House in Zagreb. The Black Book will be presented by the president of the Lipa taxpayers association Davor Huić and the NGO’s executive director Zoran Low. The roundtable will be attended by Zoran Löw, Davor Huić, economist Velimir Šonje and economist Vuk Vuković.

On its website, Lipa says it is funded exclusively by memberships and donations. It has popularised many topics such as public debt, the level of the tax burden and the way politicians spend taxpayers’ hard-earned money with their activities. By initiating a petition against the property tax, which was signed by 150,000 people, Lipa has blocked the implementation of the already adopted Local Tax Act, in its real estate taxes part. It has five goals: lower taxes, smaller government, transparency, efficiency, and reduction of public debt.

More news about public spending can be found in the Business section.

Translated from Poslovni.hr.

ZAGREB, January 19, 2019 - The parliamentary committee on finances and state budget on Friday advertised a public call for applications for the post of the president of the Fiscal Policy Commission, and the applications can be submitted in the next 15 days.

The requirements for applicants to qualify for this position are Croatian citizenship, university degree and eight years of experience in the field of public finances, the macroeconomic sector or in other branches of the economic policies.

The seven-member Fiscal Policy Commission is appointed to a five-year term by the national legislature at the proposal of the finance committee.

The new Fiscal Responsibility Act, adopted by the parliament in late 2018, envisaged the professionalisation of the Fiscal Policy Commission, as an independent and standing body without lawmakers sitting on it.

The first Croatian law on fiscal responsibility was adopted in 2010 and was amended upon accession to the European Union in mid-2013.

The new act is fully adjusted to obligations stemming from the Stability and Growth Pact.

The first rule refers to structural balance whereby the targeted value becomes a medium-term budget objective.

The second rule regulates budget expenditure, and general government budget expenditure growth must not exceed the referential potential growth rate of the country's economy.

The third rule does not allow public debt to exceed 60% of GDP.

The main task of the Fiscal Policy Commission is to envisage and evaluate the implementation of fiscal rules.

More news on Croatia’s public spending can be found in the Business section.

ZAGREB, December 3, 2018 - The Croatian Parliament on Monday adopted the 2019 budget and projections for 2020 and 2021, with revenues in 2019 totalling over 136 billion kuna and expenditures over 140 billion kuna.

The budget was adopted with 79 votes in favour, 45 against and one abstention.

Budgetary revenues are based on the economic growth and the third round of tax reliefs, while the expenditure side of the budget is focused on the strengthening of fiscal sustainability, development measures and appropriate care for everybody in society.

VAT revenues are expected to reach 51.8 billion kuna and 15.7 billion kuna is to be collected from taxes and excise taxes. Expenditures are planned at 140.3 billion kuna, 6.9 billion kuna more than in this year's budget.

The parliament adopted two amendments submitted by the government which do not change the overall amount of the budget with the current amounts being redistributed.

The first government-sponsored amendment refers to the development of assisted areas, namely parts of Croatian territory that are underdeveloped in comparison to the Croatian average and therefore need additional development support.

The second government-sponsored amendment proposes a redistribution of 4.1 million kuna to the Education Ministry for the purpose of securing funds for the Hrvatsko Zagorje-Krapina Polytechnic.

The parliament also adopted a revised budget for this year. Seventy-eight MPs voted in favour of the revised budget, one abstained while 45 were against.

Under the proposal for budget revision, budget revenues will increase by 144 million kuna from the original amount, to 129.2 billion kuna.

The most important change in the revised budget is the issue of enforced guarantees given to the Uljanik shipbuilding group, and a minimum 2.5 billion kuna of government guarantees is expected to be paid by the end of the year.

Budget revenues in the budget revision proposal are expected to increase by 2.1 billion kuna or 2.7% from the originally planned amount. VAT revenues are planned at 51.1 billion kuna, 3.1% more than originally planned, owing to positive economic trends and an increase in disposable income.

The profit tax revenue is expected to go up by 1.3% to 8.4 billion kuna, revenues from contributions is expected to go up by 2.6% to 24.9 billion kuna, while revenues from administrative fees are to go up by 18.2% to 4.4 billion kuna.

Budget spending will amount to 131.7 billion kuna, a decrease of 1.6 billion kuna from the current plan.

Guarantee reserves will be increased by 2.6 billion kuna from the originally planned 265 million kuna to 2.865 billion kuna due to the anticipated enforcement of government guarantees given to the Uljanik group.

Only two amendments were submitted to the budget revision proposal, both by the Živi Zid party, and they were both rejected.

For more on Croatia’s budget, click here.

ZAGREB, December 2, 2018 - The Croatian Parliament will reconvene on Monday to vote on 2019 budget and several laws. including the new foster care law which caused disagreements between the Croatian Democratic Union and the Croatian People's Party.

Presenting the 2019 draft budget, Finance Minister Zdravko Marić said last week revenues totalled 136.1 billion kuna, including 51.8 billion kuna from VAT. Expenditures are planned at 140.3 billion kuna, 6.9 billion kuna more than in this year's budget. In said increase, 2.8 billion kuna refers to financing from general sources, while the remaining 4.1 billion kuna refers to European funds, he said.

On Friday, the government adopted three of a total of 217 amendments to the draft 2019 budget and four amendments referring to extra-budgetary users and submitted two of its own amendments.

Finance Minister Zdravko Marić said at the session that of the total of 217 amendments, the government adopted three amendments referring to the state budget and four amendments referring to extra-budgetary users – the Hrvatske Ceste road operator.

Adopted were amendments submitted by MPs Marija Pug Šipić and Žarko Tušek, worth 10 million kuna and two amendments submitted by MPs Pero Ćosić, Ljubica Maksimčuk and Marko Šimić, worth 15.5 million kuna.

Furthermore, the government adopted amendments to a draft financial plan for Hrvatske Ceste for 2019, submitted by MPs Vesna Bedeković, Josipa Đakić, Vladimir Bilek, Željko Lacković, under which additional 37 million kuna would be secured in 2019 for building and upgrading fast roads.

The government submitted two of its own amendments. The first one refers to the development of assisted areas, namely parts of Croatian territory that are behind in development in comparison to the Croatian average and therefore need additional development support.

The second one proposed a redistribution of 4.1 million kuna to the Education Ministry for the purpose of securing funds for the Hrvatsko Zagorje-Krapina Polytechnic.

For more on Croatia’s budget, click here.

ZAGREB, November 27, 2018 - The parliamentary opposition on Tuesday strongly criticised the 2019 budget, saying it was neither developmental nor socially sensitive and telling Prime Minister Andrej Plenković that no one believed him, to which he responded by saying they were spreading demagoguery and manipulating.

"You are saying something no one believes. As if Croatia was a land of milk and honey. Why did 100,000 of our fellow citizens leave Croatia last year if it's so nice here with Plenković," said Gordan Maras of the Social Democratic Party (SDP).

Plenković said the SDP was "free to stick to demagoguery" and recalled that his HDZ party had almost double the support in opinion polls than the SDP. He added that when the SDP was in power, the government did not pay either holiday cash grants or Christmas bonuses and that the deficit was 17 billion kuna.

"You are criticising this government for not working on what everybody has seen, yet what you don't see because your policy is to be demagogues and to manipulate information," he told SDP MPs.

Nikola Grmoja of MOST complained about the deterioration of the business climate in Croatia, which Plenković dismissed, saying profit tax was cut and that the tax relief was slashed by 6.5 billion kuna and the administrative relief by 2.5 billion kuna.

Ivan Sinčić of the Živi Zid said a 2.9% growth was not enough to even pay loan interest. He said that over the past 27 years Croatia's growth was 6.5% as against Slovenia's 48%, Poland's 124% and Slovakia's 108%. "Where is the 5% growth from your programme?"

Plenković said a 2.9% growth, plus a public debt decrease, was much sounder than a 5% growth plus borrowing.

Anka Mrak Taritaš of GLAS said the 2019 budget was neither socially sensitive nor developmental and asked why expenditures were rising. "The real budget growth amounts to 2.8 billion kuna, all else are EU funds. We are talking about pension indexation, pay correction, population measures, education, capital investments and guarantees to Uljanik shipyard," said Plenković.

Željko Jovanović (SDP) commended the higher outlays for healthcare but doubted that the money would be managed rationally.

Ivan Lovrinović of Let's Change Croatia called Plenković a representative of the neoliberal doctrine because he filled banks' pockets even more, while taking even more from those living off their work.

Presenting the 2019 draft budget, Finance Minister Zdravko Marić said revenues totalled 136.1 billion kuna, including 51.8 billion kuna from VAT. Expenditures are planned at 140.3 billion kuna, 6.9 billion more than in this year's budget. In said increase, 2.8 billion kuna refers to financing from general sources, while the remaining 4.1 billion kuna refers to European funds, he said.

For more on Croatia’s 2019 budget, click here.

ZAGREB, November 20, 2018 - The opposition in the parliament criticised a government proposal for the 2018 budget revision on Monday, saying that the state continued to spend more than it earned and criticising the government over poor absorption of money from EU funds. "When all is added and subtracted, we spend more than we earn, that's it," MOST leader Božo Petrov said on government spending.

"If you think that that's sustainable, I call on citizens to start spending more than they earn and let them see for themselves how that ends," Petrov told the ruling majority.

He said that Finance Minister Zdravko Marić was like "an octopus trying to plug the holes that are opening up on the ship", "while smiling to the cameras for PR purposes."

Petrov said the government lacked a strategy for the management of public finances, that the budget revision did not create conditions for reforms, and that 2.7 billion kuna less than planned had been withdrawn from EU funds.

Social Democrat MP Branko Grčić warned of the same problem, saying that the situation had been similar in 2017. He said that in the past five years of its EU membership Croatia had used up only 14% of EU money available to it and that in the next five years it was expected to absorb and pay out 86% of the total funds at its disposal.

Grčić also warned that tax revenues were growing, meaning the growth of the absolute tax burden on households and the business sector, and that the latest round of tax breaks was insufficient.

Branimir Bunjac of the Živi Zid party claimed the public debt-to-GDP ratio had not declined but had actually increased because the state had paid debts in the amount of 21 billion kuna, and taken loans in the amount of 24 billion kuna. "This is a policy of taking loans to pay loans," he said.

Commenting on the government's guarantees for the Uljanik shipbuilding group, in the amount of 4.3 billion kuna, Bunjac said that the government had granted guarantees indiscriminately and that taxpayers would end up paying for everything.

Anka Mrak Taritaš of the GLAS party said that there was nothing dramatic in the budget revision "or any hope of more radical changes in the future".

Boris Milošević of the Independent Democratic Serb Party (SDSS) said that the problem with planning EU funds was not a new one and that it had persisted for years, calling on the Finance Ministry to help other ministries plan their budgets better.

Ivan Lovrinović of the Promijenimo Hrvatsku (Let's Change Croatia) party said that the budget was unrealistic. "With the economic policy which Croatia has been pursuing for years we cannot achieve a GDP growth rate of more than 3% no matter what we do, and the economy must grow by 3% so that we can just pay interest on state debt," said Lovrinović.

Ruling HDZ party whip Branko Bačić said that 2018 had been a challenging year and recalled the agreement on the settlement of the Agrokor conglomerate's debt, the problem of the Uljanik and 3. Maj shipyards, and the restructuring of the Petrokemija artificial fertiliser company, and commended the management of public finances in those circumstances.

"If we were not faced with the enforcement of guarantees in the amount of 2.6 billion kuna for Uljanik, the budget revision would technically result in a greater surplus than last year," said Bačić, commending a decrease in spending on interest of 100 million euro.

Ivan Šuker of the HDZ said that the reforms launched had yielded results on the revenue side of the budget while the expenditure side was affected by long-standing structural problems, the health system and the enforcement of government guarantees for ailing shipyards.

For more on Croatia’s budget, click here.

ZAGREB, November 19, 2018 - Finance Minister Zdravko Marić, who on Monday delivered the revised 2018 budget in the national parliament, said that the planned budget deficit of 0.5% of the country's GDP would not be changed, despite the enforcement of the guarantees which the government gave to the ailing Uljanik Group. Thus, the budget gap in 2018 would be 2.23 billion kuna.

Marić told lawmakers that the contingencies set aside for guarantees were insufficient to offset the enforcement of the collateral, and therefore the revised budget would increase those contingencies from the originally planned 2.6 billion kuna by 265 million kuna to 2.865 billion kuna. "The sole reason for this increase is the enforcement of guarantees for the Uljanik Group," Marić said.

He went on to say that the government was committed to its plan to reduce the public debt-to-GDP ratio. "Our latest figures show that this could stand at 74.6% of GDP this year."

During the debate on the draft budget revision in 2018 and the execution of the budget in 2017, Marić underscored that in the first half of 2018, Croatia's GDP rose by 2.7% and, in parallel, inflation went up by 1.4%, while industrial production grew by 0.4%, retail sales by 3.9% and the construction industry by 3%, whereas overnight stays by tourists jumped by 8.8% in H1 2018.

The total budget revenues in H1 2018 increased by 2.9% year on year to 59.9 billion kuna, Marić said, adding that the revenues from taxes came to 35.4 billion kuna. The good H1 trends continued in the rest of the year, the minister said.

The revised budget envisages the rise of total revenues from the originally planned 129 billion kuna to 129.2 billion, said Marić.

Under the revised budget, expenses are to be cut by 1.6 billion kuna to 131.7 billion kuna.

The biggest additional allocation under the revised budget is 405.3 million kuna for the healthcare system, the minister said.

During the debate, opposition lawmakers criticised the government for failure to absorb more funds from European Union sources.

Peđa Grbin of the Social Democratic Party (SDP) criticised Marić for relying on an annual economic growth of 2.9% which is lower than the economic growth in some of the countries in the neighbourhood.

Marić replied that Croatia based its economic growth on realistic foundations. "All of us would like to have higher growth rates and I believe Croatia can achieve higher rates. However, this is our current reality," the minister said.

For more on Croatia’s finances, click here.

ZAGREB, November 10, 2018 - Social Democratic Party (SDP) leader Davor Bernardić commented on Saturday on the 2018 budget revision, the 2019 budget proposal and the set of nine tax bills announced by Finance Minister Zdravko Marić on Friday, saying that all this showed that Croatia would continue to stagnate and there would be no reforms.

"This is just patching up holes and uncontrollable spending of money to buy votes and coalition partners, which is proved by the planned increase in expenditure of as much as 8.6 billion kuna in one year alone and the fact that expenditure will overshoot 140 billion kuna," Bernardić said in a statement.

Bernardić said that the draft of the new budget was based on a tax reform that "actually isn't a reform at all." He said that all along the government had been speaking of "tax relief" while now it projected the 2019 budget revenue from taxes at over 3 billion kuna more. "What kind of reform is that and what kind of tax relief?" he wondered, noting that the currently strongest sector, tourism, was saddled with a burden of four or five new levies. "Instead of reforming the healthcare sector, the government is patching up a hole by reducing some of the contributions while at the same time increasing the healthcare contribution."

Instead of easing the tax burden on salaries for most workers, the government has decided to increase salaries only for the 20,000 richest people in the country, namely those with monthly salaries exceeding 18,000 kuna, the SDP leader said, noting that even the Croatian Employers Association (HUP) had denied the government's claim that salaries for IT employees would grow.

"That's why we in the SDP have proposed increasing the non-taxable portion of salaries from 3,800 to 5,000 kuna so that wages for 600,000 workers would increase by 300-500 kuna monthly or 4,000 to 6,000 annually," he said.

Bernardić welcomed the government's move to increase the amount of non-taxable bonuses to 7,500 kuna, but noted that the government had actually not renounced anything in favour of workers but had left it to the discretion of employers, "so it is a big question how many of them will decide to increase bonuses for their workers."

He accused the government of exaggerating figures about the absorption of EU funds. "Today, after five and a half years of EU membership, we have actually absorbed only 14 percent of nearly 11 billion euro placed at our disposal by the EU. This is also one of the reasons why we are stagnating in relation to other EU members."

Bernardić said that all the budget projections would not be enough to stop people from leaving Croatia and resolve the problem of labour shortages. He also pointed out that the government had not specified what reforms it intended to implement next year and how the country would move up in competitiveness rankings.

For more on the events in SDP, click here.

ZAGREB, November 9, 2018 - The 2019 budget proposal which Finance Minister Zdravko Marić delivered at a government meeting on Friday envisages higher budget allocations for all ministries except for the Tourism Ministry, the funds of which will go down by 16.8%.

Expressed in absolute numbers, the biggest winner is the Finance Ministry as its allocation will increase by nearly 7.5 billion kuna from its allocation in the original 2018 budget, and in 2019 it will rise by 21.8% to 41.9 billion kuna.

Expressed in the percentage, the State Assets Ministry's allocation will increase the most, by 47.5% to 108.7 million kuna.

The office of the government can count on 424.5 million kuna in 2019, which is 19.7% more than its budget allocation in the 2018 budget.

The 2019 draft budget envisages funds for the Office of the Croatian President in the amount of 37.7 million, down by 1.1%, and the budget allocation for the Parliament will be reduced by 9.9% to 168 million kuna.

The budget revenues planned for 2019 are expected to amount to 136.1 billion kuna, up 5.5% in comparison to the 2018 budget.

The budget expenditures are projected at kuna 140.3 billion, 6.9 billion more than in the original budget for 2018.

 VAT on OTC drugs to be lowered to 5%, tax-free bonus amount to rise to 7,500 kuna

The government on Friday sent to the parliament a set of nine final bills on taxation envisaging amendments to the Value Added Tax legislation, including a lower, 5% rate on prescription drugs as well as on over-the-counter drugs, and a rise in the tax-free amount of annual bonuses for employees from 2,500 kuna to 7,500 kuna.

The final set of draft laws envisages that all medicines, including prescription and OTC drugs, should be taxed by a 5% rate, Finance Minister Zdravko Marić said, recalling that currently the tax rate for prescription medicines is 5% and for other drugs 25%.

The VAT rate on the services of writers, composers and artists and the related copyrights is to be lowered from the standard 25% rate to 13%.

The same reduction can be expected regarding the VAT on fresh meat and fish, fruit, vegetables, eggs, live cattle delivery and nappies.

Marić said that those were the most important items of the consumer's basket.

Also, the legislative changes envisage a threefold increase in tax-free annual bonuses to employees such as Christmas and Easter bonuses, holiday allowances and extra monthly wage. Thus the non-taxable amount of the bonuses will be set at 7,500 kuna.

Prime Minister Andrej Plenković described that as good news. "I think that this is what many employers had hinted at when it comes to tax changes," he said about the changes that are to take effect on 1 December.

For more on taxes in Croatia, click here.

ZAGREB, November 9, 2018 - Prime Minister Andrej Plenković said on Friday expenditures would not be increased in a 2018 budget revision thanks to positive macroeconomic trends, while the 2019 draft budget, based on 2.9% economic growth, was rational and good.

Speaking at a cabinet meeting, Plenković reiterated that he was glad the European Commission had revised upwards its forecast of Croatia's economic growth this year, from 2.6 to 2.8%. He said the government's and the Commission's forecasts converged and that this was a result of the predictability of what the government has been doing over the past two years, including adhering to the limits defined in economic and fiscal policy guidelines.

Plenković said this year's macroeconomic trends had a positive effect on budgetary revenues as revenues from VAT tax, contributions, excises and income tax were higher than planned. "All these indicators are good and positive, which is why this year we can propose a revised budget which doesn't increase expenditures."

He underlined that enforced state guarantees for the ailing Uljanik shipbuilding group would burden the state coffers"with what we, perhaps, didn't count on."

He recalled that the budget recorded a 1.6 billion kuna surplus in the first half of this year, saying the trend continued and that he had told ministers he expected of all "a very restrictive policy in the next six weeks" so that the budget could remain balanced by year's end. "That's certainly our goal, considering that the guarantees we will have to pay are mostly guarantees issued by previous governments, notably from September to November 2015."

Speaking of reallocation within the revised 2018 budget, Plenković said the health sector would receive 400 million kuna, 230 million kuna would go for pension indexation, culture, construction, science, the judiciary and regional development, and funds would also be reallocated to the Interior Ministry for migration, and for the population policy. "It seems to me that, with this budget revision, we achieved what we could at this moment and what was useful," he said, adding that this year's budget deficit was expected to be 2 billion kuna or 0.5% of GDP, exactly as the government predicted.

He asked the ministers to make additional efforts and continue the positive trend despite the Uljanik situation, saying it was crucial for achieving key economic policy goals, including reducing the public debt-to-GDP ratio, which he hopes will be 75% by year's end, despite Uljanik.

In connection with the 2019 draft budget, Plenković said that the document was based on a projection of the country's economic growth of 2.9% next year, and the gap is set to be 0.4% of GDP.

The draft budget revenues are expected to be 136.1 billion kuna, rising 5.5% in comparison to the original draft budget for 2018. The budget expenditures are expected to be 140.3 billion kuna, increasing by 6.9 billion kuna compared to the original draft budget for 2018.

Plenković expects the revenue side to be based on economic growth as well as the third round of a tax reform.

The expenditure side depends on the strengthening of fiscal sustainability. "We want to implement those measures essential to encourage development, in parallel to taking care of the needs of all layers of the population. Thus, this budget has a dimension of social solidarity as we want to achieve social cohesion," the premier said.

"The draft budget is rational, good and conducive to our efforts to achieve the priorities of our programme. We are dedicated to fiscal consolidation and we want to send a strong message that we are the government that knows which course should be taken and we know how to plan," Plenković said.

Science and Education Minister Blaženka Divjak expressed satisfaction with a rise of about half a billion kuna (67.5 million euro) in the budget allocation for her ministry in 2019, explaining that the rising funds follow the reform processes such as the ongoing curriculum reform.

The minister recalled that her department had launched ambitious reforms which were now being financed from the state budget. "Without investments in science and R&D, we could be left on the wrong side of an iron curtain that is falling between those who base their economies on innovations and those who still do that in a traditional way," Divjak said.

She said that there would be no 3% increase for teachers' salaries but the ministry "has set aside funds for awarding those who have worked better and more but have not been appropriately remunerated to date."

Public Administration Minister Lovro Kuščević also expressed satisfaction with the planned higher budget allocation for his department, explaining that this would help efforts to digitise public administration.

For more on Croatia’s budget issues, click here.