December the 3rd, 2022 - The highly unpopular new Croatian profit tax has already been raked over the coals by many, but it seems that it will go as far as to undo all of the very important reforms that have been successfully implemented so far.

As Poslovni Dnevnik/Marija Brnic writes, over the weekend, Finance Minister Marko Primorac will have the opportunity to study a number of proposals that came up in the public debate on his, controversial to many, legal proposal for a new additional income tax.

 Even before that, Primorac repeated to journalists that he wouldn't give up on the introduction of this new Croatian proft tax, which is in fact tax on extra profit, as well as that there should be no exemption of certain sectors from paying this new tax.

Proposals were submitted by numerous large Croatian employers, as well as some smaller ones, consulting firms, banks, associations, and even economic analysts. Marijana Ivanov, a professor at the Faculty of Economics in Zagreb, was among the most active individuals in this debate, and among others, she has been calling for the application of this new Croatian profit tax to be moved to 2023.

Although, it seems, the minister isn't remotely inclined to single out and ''show mercy'' to certain sectors, part of the proposal regards precisely those appeals for him to do so. Along with the Viktor Lenac shipyard, which has warned that it will be the only one in the entire EU to will be burdened with this, a similar cry comes from the Croatian association of shipowners - Mare Nostrum.

With this new Croatian profit tax, they warn, shippers who have chosen to participate in the tonnage tax system will be imposed such a tax incompatible with the tonnage tax system, thus putting them in an unequal position compared to competing EU shippers.

For the Medjimurje-based company Muraplast, an important correction would be to exempt companies using the Investment Promotion Act from paying additional tax, or to propose that, otherwise, the requested amount of additional tax be taxed as normal profit tax, which can be reduced by a certain amount through the Investment Promotion Act . They're also standing up for the protection of energy-intensive companies, which did manage to make somewhat of a profit this year.

The Croatian Chamber of Commerce (HGK) is also active in this regard. In their proposal, they present the case of a member from the automotive industry, which, after coping with some bad times, is already having to deal with a 20 percent drop in orders for next year.

AmCham also joined the debate that literally erupted recently, warning that the announcement of this new Croatian profit tax actually goes against the positive results achieved by the Republic of Croatia through several rounds of tax reform, as well as the efforts the government has made so far to achieve tax stability and predictability. They fear the move will do nothing but call the positioning of Croatia as an investment destination into question once again.

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ZAGREB, 4 May 2022 - Finance Minister Zdravko Marić said on Wednesday that employers' proposal to further reduce the tax burden on labour are taken into account in principle but that additional discussions and analyses are required, while reducing contributions requires structural reforms in the health and pensions systems.

The Croatian Employers Association (HUP) said on Tuesday that attracting and keeping quality labour required a more significant reduction of overall labour costs so that employers could pay higher salaries to workers, proposing short-term proposals for an increase in net wages, which should happen relatively soon.

"It is necessary to significantly reduce the total cost of labour, including by increasing non-taxable income to HRK 5,000, reducing the lower income tax rate by 5 pp, from 20% to 15%, and keeping the higher income tax rate at 30% but raising the threshold for its application, from the current HRK 30,000 to 50,000", HUP said.

As for contributions, HUP called for reducing the contribution to the first pension pillar by 2 pp, from 15 to 13%, reducing the health insurance contribution by 1.5 pp, from 16.5 to 15%, and limiting the highest amount of payments for pensions and health insurance to four average monthly wages.

HUP also proposed a further increase in non-taxable payments to workers, notably considering that that does not mean additional costs for the state while creating more room for employers to compensate workers.

HUP advocates increasing the non-taxable amount for rewards from HRK 3,000 to HRK 6,000 and rewards for work performance from HRK 5,000 to HRK 12,000. It also advocates the introduction of non-taxable income for work from home, increasing the non-taxable amount for severance pay and retirement from HRK 8,000 to HRK 15,000 as well as increasing the allowance for the use of private vehicles for business purposes from HRK 2 to HRK 3 per kilometre.

Marić said that at present, at least two-thirds of taxpayers did not pay income tax since in previous rounds of tax reform tax breaks were introduced and basic tax relief was increased.

The principle of proportionality of taxation could be further discussed, he said, recalling other tax changes, including the exemption of young people from income tax, which this year will result in 146,000 young workers receiving HRK 640 million in tax return.

He said that he government had worked a lot on income tax, noting that the scope of nontaxable income had been expanded.

"Further reducing the tax burden, of which I am in favour, requires, among other things, paying special attention to health and pension insurance contributions," Marić said but noted that due to the situation in the health and pension sectors, creating preconditions for further reducing the tax burden on labour would require structural changes in the two sectors.

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ZAGREB, 2 Feb 2022 - The parliamentary opposition on Wednesday strongly criticised amendments to a set of laws regulating the judiciary, noting that contrary to the government's claims, they did not constitute a reform, yet members of the parliamentary majority confirm the amendments "are a step forward."

"This is yet another fake reform, an attempt to show that something is being done with the aim of actually preventing any radical change in the judiciary," said Sandra Benčić of the Green-Left Bloc.

Peđa Grbin of the Social Democratic Party, too, believes the proposed amendments would not result in any improvement to the judiciary, and that in two years' time, one would again be saying that the situation in the judiciary was deteriorating.

Katarina Peović of the Workers' Front was of the same opinion, warning of the centralisation of power in the hands of the Justice Ministry.

"The minister will be able to decide who gets hired and what kind of employment exam will have to be taken", said Peović.

Criticising the proposal to run periodic background checks on judges, Dalija Orešković of the Centre party said Croatia was the only EU country where a political party convicted of corruption held decision-making powers on the judiciary.

"Why is the government pushing for background checks, isn't that an act by the government of exerting influence", asked Vesna Nađ of the Social Democrats.

Justice Ministry State Secretary Josip Salapić dismissed the criticisms, explaining that background checks would be done by the Security and Intelligence Agency (SOA), which would only determine the facts. The decision on whether there was an obstacle for a judge to do their job would then be made by a special council.

Decisions not to be made by politicians but judges

"Politicians will not be the ones to decide on anything, that will be done by judges, the situation is transparent", said Salapić.

Ruling HDZ party MPs consider the government-sponsored amendments as a significant improvement.

"Background checks already exist for judges of the Office for Suppression of Corruption and Organised Crime (USKOK), and now they will apply to all judges, which is a good solution", said HDZ MP Damir Habijan.

As for MP Orešković's criticism about the HDZ's clout in the judiciary, Habijan wondered who should put forward bills, "the ruling majority or a deputy who won 0.16% of votes in the elections?"

Marija Jelkovac (HDZ) welcomed changes designed to improve the financial status of court police, and that the age limit to hire interns has been increased from 30 to 35 years.

Changes to the law on courts, and the law on areas and seats of courts, include a more precise definition regarding the procedure to elect the Supreme Court president. They also introduced background checks for all judges every five years.

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ZAGREB, 13 July, 2021 -.The president of the Croatian Chamber of Commerce (HGK), Luka Burilović, said on Tuesday  that further reform moves were necessary for that institution, and added that up to 150 people might be laid off.

Addressing the HGK general assembly in Zagreb, Burilović said that after 30 years, this institution would be overhauled due to the new legislation on the HGK.

Also on Tuesday, Economy Minister Tomislav Ćorić outlined to lawmakers a new bill on the chamber, explaining that the purpose of the new legislation was to encourage positive changes and not to undermine the reputation of the HGK.

Last week, the government sent to the parliament a draft bill on the HGK whereby the mandatory membership fee will be waived for more than 95% of entrepreneurs in Croatia.

The bill envisages three categories of members.

The first group includes members who can apply for the fee waiver if they meet at least two of the following three criteria: their total assets do not exceed HRK 7.5 million, their annual revenues do not exceed 15 million kuna, and/or the number of people on their payroll is below 50.

The second category comprises those who surpass at least two of the above mentioned criteria, however, they do not surpass the following three criteria: assets of 30 million kuna, their annual revenues do not go beyond HRK 60 million and the number of their employees is up to 250.

The third category includes those who surpass two of the requirements set forth for the second category.

Category 1 members, an estimated 126,000 businesses whose monthly fee has been 42 kuna so far, will be exempt from the mandatory membership, however, they will pay additional services and products of the Chamber, as specified in the HGK price list.

They will be offered the possibility to pay voluntary membership aimed at stimulating the modernisation of the workings of the chamber.

Members from Category 2 and 3 are supposed to pay the mandatory membership fee and the fee will be defined for each category on an annual basis.

Addressing the HGK assembly, Burilović said that when he came at the helm of this institution in 2015, the first wave of reforms started and at the time the HGK personnel was downsized from 670 to 380. He expects the further layoffs  and also recalled that fees had been slashed four times in the said period.

After the implementation of the new law, the chamber is likely to have 230 people on its payroll.

The HGK assembly today decided to exempt businesses from the quake-hit areas from the fee payment in the rest of this year.

Also businesses from the hailstorm-affected parts of Požega-Slavonia County are exempt from the payment of membership fees this year.

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ZAGREB, 28 June 2021 - Croatia will realise four big projects in the next three years, the Pelješac Bridge, joining Schengen and the eurozone, and buying fighter jets, and will also use them for the necessary reforms, Prime Minister Andrej Plenković said on Monday.

Croatia's road to independence was difficult, but the years ahead will not be easier if we don't prepare for the world that is coming, he said at a conference on Croatia's key successes, organised by Hanza Media on the occasion of Croatia's 30 years of independence.

Plenković said the government's ambition was to join the eurozone on 1 January 2023 and that the multipurpose fighter jets would arrive in early 2024.

Health reform framework in the autumn

"Reforms are key" and all that we have now are remnants of past administrations, policies, circumstances, weaknesses as well as daring, he said.

He singled out the judicial reform, resolutely stating that "the judiciary is not the HDZ's."

State administration will be strengthened because it must be more efficient, counties will not be changed but there is room to merge municipalities, which will cut costs, Plenković said.

The privatisation of the state-owned portfolio will continue while advancing corporate management, he said, also underlining the importance of education and health reform.

Healthcare has generated enormous expenses for years, but there is a concept of a solution which should be hammered out in the near future, Plenković said, adding that many laws would be amended in the autumn to make it easier to run the health system.

He said it was necessary to make progress in demography and also highlighted climate change.

"It would have been better had we solved some things faster," he said, but added that with "these three to four steps we will do in the next two and a half years, and (with) the money we ensured for the next ten years, we have indeed created prerequisites for development that we never had."

Vaccination is also an economic issue

Plenković called on citizens to get vaccinated against COVID-19, saying it was also an economic and financial issue, and that the tourist season could be lost if Croatia was declared unsafe.

He said it was a matter of personal responsibility and warned about the threat of new variants and a fourth wave of coronavirus.

Croatia's road to independence was difficult and demanding

Looking back over the past 30 years, Plenković recalled that Croatia had been a victim of Greater Serbia aggression but that it managed to build an army and defend its freedom.

He said the 1991-95 war claimed many lives and caused big destruction, which cost Croatia 15 years of development because pre-war GDP was restored only in 2004. He said 15% of homes were destroyed, that the war damage amounted to 160% of the pre-war GDP, and that over 150,000 houses were rebuilt after the war.

Plenković said the second decade of Croatia's independence saw the beginning of economic transition and key steps towards the realisation of geostrategic goals, including joining NATO in 2009 and completing EU accession negotiations by the end of 2011.

Those were years of strong GDP growth, but will lots of borrowing, followed by the global crisis which lasted until 2013, when we joined the EU, a historic success, he said.

He added, however, that Croatia started utilising the benefits of EU membership only in 2016 because only 9% of the funds available had been contracted by then, as against 120% now.

Plenković said that between 2012 and 2015 Croatia fell from 61 to 60% of the EU's GDP average, while in the past five years, before COVID-19, GDP per capita was raised to 65%, falling to 64% now.

He said that in the past five years quality of living had improved, with considerably higher wages, pensions, and social and maternity allowances. The average net pay in that period went up by HRK 1,440 to 7,082 this past April, while the minimum net pay went up by HRK 904 to 3,400, he added.

Speaking of employment, Plenković said the number of pension insurees fell by 90,000 between 2009 and 2016, while going up by 134,000 to over 1.5 million in the past five years.

He said the biggest problem of his first term in office, from 2016 to 2020, was saving the Agrokor conglomerate from bankruptcy, adding that the Petrokemija company was restructured and shipyards' debts were settled during that term also.

He recalled that for the first time, Croatia had a budget surplus for three consecutive years. "Before the pandemic, we relieved the corporate sector by more than HRK 11 billion in taxes and administration, the credit rating was raised to investment level."

Strong international position

Plenković said Croatia had a strong international position and that EU funds helped to carry out strategic projects such as the LNG terminal on Krk island.

He said he expected the U.S. to waive visas for Croatian citizens this autumn, also because of the good political and military ties.

He said good relations had been built with China and that China helped Croatia a lot at the start of the pandemic.

Plenković went on to say that Croatia had secured another €25 billion from the EU for the next ten years, and that it was in a more difficult situation than others because of the two strong earthquakes that hit last year.

The COVID crisis has cost us HRK 34 billion, he said, adding that unlike Croatia other countries did not have HRK 128 billion in earthquake damage.

We have ensured HRK 11.1 billion for wages and 700,000 jobs have been retained in the past 15 months, he said.

The National Recovery and Resilience Plan was made for green and digital transition, he said, confident that the realisation of the measures contained therein in the next two years would ensure an additional GDP growth of 1.4%.

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ZAGREB, 7 May, 2021 - A part of the National Recovery and Resilience Plan (NPOO) refers to developing a competitive, energy sustainable and efficient transport system, and it is valued at HRK 5.5 billion, Minister of the Sea, Transport and Infrastructure Oleg Butković said on Friday.

The National Recovery and Resilience Plan totals HRK 47 billion and comprises five components, with the economy component valued at HRK 26.2 billion. That component includes a sub-component on developing a competitive, energy sustainable and efficient transport system, with investments worth HRK 5.5 billion, recalled Butković.

The plan, he said, foresees the continuation of significant investments in modernising transport infrastructure with the aim of developing a sustainable transport system and stimulating the development of smart solutions as well as  reforming rail, road and air transport as well as maritime and inland navigation.

We are prepared to make these reforms and that is an opportunity to continue the current strong investment cycle in transport infrastructure, which amounts to more than HRK 25 billion. With the resilience programme we are continuing that investment cycle which will amount to more than HRK 30 billion by 2030, particularly in railway projects as well as all the other projects, said Butković.

He announced that reforms would include amendment of the Roads Act by 2026 to create conditions for the interoperability of electronic road toll systems and improve road safety.

Answering reporters' questions, Butković said that the Hrvatske Autoceste road management company is well on its way to advertising a tender for a new contactless toll system at all motorways in the country.

He estimates that the tender could be advertised in September or October and that the new system will most likely mean the introduction of a digital vignette.

The plan also foresees the adoption of new laws on maritime zones and sea ports, on inland waterway transport and ports, and on regular and occasional sea transport to ensure uniform implementation of regulations on public port management.

The plan also includes the construction and reconstruction of railway infrastructure, the modernisation of sea ports, the procurement of three passenger ships and three catamarans, new ferry boats, trams, buses, a new photovoltaic power station, and the construction of a new Level 5 autonomous vehicle, said Butković.

According to Butković, HRK 2.8 billion of the HRK 5.5 billion planned to be invested in the transport system would be allocated to the private sector.

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ZAGREB, 21 April, 2021 - Labour and Social Policy Minister Josip Aladrović said on Wednesday that intensive talks had been underway with all stakeholders in the social welfare system, noting that the system was ready for a reform.

He said that an action plan for a broad reform was being prepared and that it would be presented in the next few days.

However, certain challenges have accumulated in the system for a long period of time so its reform will also take time and require quality engagement of all stakeholders, he said.

The action plan is comprehensive and detailed, the minister said, adding that no group of beneficiaries or employees would be left out.

"We want a solid and implementable document," he said, adding that the reform would focus on the beneficiaries of the social welfare system as well as deal with the problem of a shortage of social workers and excessive workload. 

An analysis has been made on the shortage of staff in all 83 social welfare centres in the country, he said, adding that the hiring of new staff would start soon.

The action plan also aims to facilitate the process of adoption and putting a child in a foster family, he said.

Commenting on a half-an-hour protest of social workers held earlier in the day, Aladrović said that it was their right and that he did not want to question it.

"But what we expect is the continuation of good cooperation with representatives from the entire system of social care," he said, expressing confidence that with joint work and implementation of the action plan the system could be improved to the benefit of its users.

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ZAGREB, 16 April, 2021 - Social Democratic Party (SDP) leader Peđa Grbin on Friday claimed that the Prime Minister and the Croatian Democratic Union (HDZ) president Andrej Plenković was the "obstacle to all reforms and changes in Croatia."

"Dear Andrej, instead of getting riled up and complaining that the opposition doesn't understand anything, tell us why are you keeping the healthcare reform on the shelf," Grbin sent Plenković a message on his Facebook profile in reaction to the prime minister's claims that while the National Recovery and Resilience Plan was being presented in parliament the opposition showed "its "emptiness, hollowness, a lack of creativity, a lack of information and knowledge," and that Grbin's rating was poor and he was not the leader of the Opposition.

"Your minister, Beroš, yesterday while he wasn't aware that the cameras were recording, admitted what we all know: Andrej Plenković is the obstacle to all reforms and changes in Croatia and the main reason why this country can't move forward," added Grbin.

Grbin posted that  "Andrej Plenković, known as a procrastinator, is a man who is keeping the health reform on the shelf because of the local election while the system is losing dozens of millions of kuna each week and people cannot get medication."

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ZAGREB, 13 April, 2021 - The ruling Croatian Democratic Union (HDZ) caucus said on Tuesday that the National Recovery and Resilience Plan was a developmental document that is based on necessary reforms and that its objective is Croatia's overall economic development.

HDZ whip Branko Bačić told a press conference in Parliament House that with that document Croatia received the highest amount of all EU member states according to its GDP. "And that is one of the indicators that one loves Croatia through deeds and not words," claimed Bačić.

He underscored that there is no strict difference between funds for the real sector and public investments because both sectors have to interact with the aim of developing Croatia's economy.

HDZ MP Marko Pavić explained that the plan relates to one-quarter of the €24.5 billion that Croatia has negotiated with the EU for the next 10 years, which is twice as much as Croatia had until now.

Pavić rejected opposition claims that not enough funds were foreseen for the private sector.

Croatia is near the top of EU countries with regard to allocations for the private sector, about one-third are direct allocations and more than half are indirect through public procurement, he underscored.

Direct allocations for the private sector in Spain, Portugal and Estonia, for example, are at 30%, in Lithuania between 10 to 20 percent and nothing in Germany, he added.

Pavić: Government is open to suggestions and constructive proposals from the Opposition

Andrej Plenković's government has shown that it knows how to obtain funds and that it has the creativity and know-how to use those funds, claimed Pavić and added that the government is open to any suggestions and constructive proposals from the Opposition.

Referring to the one-off COVID supplement for pensioners that the government announced on Monday, Bačić denied that this was a pre-election move. "Any measure can be considered to be a pre-election move regardless of when it adopted... The COVID supplement has occurred now when the government reached an agreement with its partners," he said.

Bačić commented on the initiative for stricter penalties for Ustasha symbols, reiterating that the HDZ advocates a comprehensive rule for the use of symbols of all totalitarian regimes.

Defending the use of symbols of just some totalitarian regimes opens new ideological debates and arguments that do not contribute to anything, and the only way to approach the matter is to have an equal distancing from all undemocratic totalitarian regimes, he said.

The use of the 'For the Homeland Ready' needs to be banned except when wartime units commemorate events in which their fellow fighters were killed, he added.

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As Poslovni Dnevnik writes on the 1st of May, 2020, although the Croatian Government predicts a GDP decline of 9.4 percent, economists warn that a much larger decline is possible. Minister Tomislav Coric is also an economist by profession, and he spoke about these concerning figures on RTL Direct.

The worst-case scenario that Croatia can more or less count on if nothing is done is a 20 percent GDP drop in which Croatian society will lose 89 billion kuna. In that case, every citizen of Croatia would have an average of around 22,000 kuna less than last year.

Tomislav Coric first revealed whether or not he would bet that Croatia's GDP decline would be at 9, 15 or 20 percent. That is, how much this freezing of the economy and of the normality of life will actually cost us.

''I'm convinced that in the next eight months, the Croatian economy, with additional engagement and favourable circumstances in the context of the tourist season, can achieve a better result,'' Tomislav Coric said, adding that it was obvious that any fall in GDP means a loss of economic power for Croatia.

"That's a fact and we've been witnessing this ever since the pandemic began. That's why we came up with a set of measures. We have already done a lot to get the Croatian economy out of this situation. If circumstances turn out to be more favoruable after June, GDP will fall below nine percent,''

He did not say what plan B was in case things go sour, but simply said that he believe we can be more optimistic about 2021. Once again, however, he still danced around the question of what precisely plan B is in case the coronavirus pandemic returns in another wave this autumn.

"Plan B always exists. The economy always works, at a higher or lower level,'' Tomislav Coric said. Asked again what plan B was, he simply said: "If the economy were to be locked up again, a decline in GDP would reflect that," but once again failed to specify any of the details of this "plan B".

However, almost 14,000 people have been left without work in Croatia, their lives have been threatened and they need more than words from Tomislav Coric, but also from those in power.

"As far as people being out of work is concerned, what we will not experience as a result of this situation is an increase in employment. I believe that there will be no significant increase in unemployment. The measures we have put in place are there to make sure we don't end up with even more people ending up being out of work. In the US, 26 million people have lost their jobs,'' Tomislav Coric said, referring to citizens' desire for territorial, public administration and public sector reform.

"As far as public and civil service reforms are concerned, their employees are regular citizens just like all of us. Reducing the number of employees would mean leaving even more people unemployed. Next year will be the year to reflect on all of these reforms,'' he noted.

''At the government level, we're working to further reduce the budget. We don’t want to cut the branch we’re sitting on off. Most of the funds that we need are created from debt, and Finance Minister Zdravko Maric has gone in that direction. We'll certainly be able to borrow because we have a responsible policy,'' concluded Minister Tomislav Coric.

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