ZAGREB, July 23, 2020 - Creating 100,000 jobs, increasing the average and minimum wages and further tax cuts are some of the goals of the programme of the new Croatian government that will be presented in parliament on Thursday.

The programme covers five main areas: social security, a prosperous future, economic sovereignty, stronger statehood and global recognisability.

The new government of Prime Minister Andrej Plenkovic aims to spend HRK 10 billion in creating conditions for opening 100,000 jobs and ensure an average monthly salary of HRK 7,600 and a minimum wage of at least HRK 4,250 by the end of the term.

It plans to spend HRK 3 billion in modernising the healthcare system, build a national children's hospital in Zagreb, revitalise the Institute of Immunology, and increase pensions by at least 10%.

Further tax cuts are also planned. The VAT rate on all food will be reduced from 25% to 13%, and income and profit taxes will also be reduced.

The education reform and digitalisation will continue. HRK 5 billion will be invested in modernising the education system and providing 50,000 scholarships.

Another HRK 5 billion will be invested in innovation, entrepreneurship and new products for the purposes of digital transformation of industry and increasing exports. Investment in research and development will be increased from the present 1% to 2.5% of GDP, and creative industries will be developed.

To promote demographic revitalisation and improve the status of families, the government will subsidise 20,000 housing loans for young families, provide a parental allowance in the amount of a full monthly salary, extend opening hours for another 200 kindergartens and regulate Sunday work.

The coronavirus pandemic and disruptions in the supply chain in the globalised economy have confirmed the need for self-sufficiency in food and energy production in order to achieve economic sovereignty.

To that effect, the government plans to increase agricultural production by 30% to HRK 22 billion, build 20 regional fruit and vegetable centres, double the area of land under irrigation, and adopt a new strategy for development of sustainable tourism.

With the number of cabinet ministries already reduced, the government aims to halve the number of local government officials and ensure the functional linking of municipalities. It will continue the judicial reform, adopt a new enforcement law and continue the uncompromising fight against corruption.

The government will insist on balanced regional development, planning to invest HRK 30 billion for that purpose.

In cooperation with the City of Zagreb and adjacent counties, the government will continue to address the consequences of the March 22 earthquake and adopt an effective legislative framework for reconstruction with the aid of domestic and international financing sources.

The government pledged to continue working on the political positioning and economic strengthening of Croatia. It will promote the national interests, protect the dignity of the Homeland War and veterans, and strengthen the Croatian military and police.

The achievement of the strategic goals - accession to the Schengen area, euro area and OECD - will make the national sovereignty and influence of Croatia in Europe and the world stronger, the government said in its programme, pledging further support for the Croatian diaspora.

The government said it was aware of the challenges facing it over the next four years, including the economic recovery from the consequences of the coronavirus pandemic, the post-earthquake reconstruction of Zagreb and its environs, and the transformation of the national economy.

The government's priority will be to use the €22 billion from the new EU budget and the New Generation EU instrument for a speedy recovery of the economy and for investment in the priority areas defined by its programme.

(€1 = HRK 7.527377)

Finance Minister Zdravko Maric has no doubt been plagued with questions about much needed reforms over the last few years, and even more so as Croatia prepares to eventually adopt the euro as its official currency and as such become a full Eurozone member. But, when will those reforms actually happen?

As Poslovni Dnevnik writes on the 18th of July, 2020, the Minister of Finance, Zdravko Maric, revealed that the reform priorities of this new Government headed by Andrej Plenkovic will involve the reform of the administration, as well as the reform of healthcare, for which, as Zdravko Maric says, the financial situation is unsustainable in its current form.

For the last weekend of July, Minister Zdravko Maric announced the first systematic write-off of tax debts, Jutarnji list reports.

"On Monday, we'll receive the data from Croatia's taxpayers for June. More than 90,000 taxpayers have asked for a tax deferral, so, we'll have a look at the numbers. If you have a drop in income of more than 50 percent in April, May, and June compared to the same period last year, you'll have the option to write off part or all of your tax liabilities either in full or in part. Anyone who has had a 20-50 percent drop will have the option of partial installment payments.

Over the last weekend of July, we're going to conduct the first systemic debt write-off. Of the 90,000 taxpayers who sought a deferral (excluding data for June), about 7,000 of them had a drop of less than 20 percent and as such, they were disqualified for a new deferral. They have already received it and the Tax Administration, as they say, will not immediately be on their backs over that. Such people will have the option of installment payments according to the criteria that existed before the coronavirus pandemic hit,'' Zdravko Maric explained to Jutarnji list.

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As Marina Klepo/Novac writes on the 11th of July, 2020, the announcement of income tax reduction pleasantly surprised many, because such moves by the Government are generally not expected immediately after the elections, but what is certain is that not everyone is happy about it, and Croatian municipalities are going to have much less to play with as a result.

Income tax revenues from 2018 have gone entirely to local budgets, and according to the Ministry of Finance, they amounted to 14.6 billion kuna last year. If Prime Minister Andrej Plenkovic remains adamant in his decision to reduce the income tax rate from 36 percent to 30 percent and also from 24 percent to 20 percent from January the 1st next year, a rough calculation by tax experts shows that Croatian municipalities (local units) could be left without about two billion kuna.

Given the fact that the current structure of local self-government units across Croatia would find it incredibly difficult to bear the weight of the loss of that amount of revenue, the question arises as to whether the Government's announcement of a reduction in income tax rates implies the plotting of a slightly more ambitious plan is going on. This could be concluded, judging by the statements made during the election campaign, including that of the Minister of Administration and a member of the HDZ Central Committee, Ivan Malenica.

With the reduction in the number of ministries, Malenica said that "the number of local officials will be halved, everything will be done to make the public administration more efficient and effective". This includes coming forward with digitalisation to the level of Croatian municipalities and local governments and connecting all local bodies and institutions to central state registries. Such a move would naturally imply a great number of services, applications and platforms.

The dynamics of the Government's changes are yet to be seen, but it can be expected that with the reduction of income tax rates, it will go hand in hand with measures to solve the problem of loss of income of Croatian municipalities/local units. When they were left without a part of their income during the previous rounds of tax changes, the Minister of Finance, Zdravko Maric, found a way to compensate them from the central budget or to leave them other revenues, such as interest taxes. If a similar scenario happened this time, Danijel Nestic from the Institute of Economics believes that it wouldn't be good for the simple reason that it would mean increasing the dependence of local units on the central government itself, although Croatia already has a very high level of centralisation.

''Maybe now is the opportunity for us to reconsider our fiscal capacities and reduce the number of local units. Of course, this doesn't have to be done by a decree of the central Government, but the Government can set criteria to motivate municipalities to merge,'' said Nestic, emphasising that these criteria must be related to the ability to perform functions and services. In addition, it imposes the need to provide Croatian municipalities with greater independence and flexibility when collecting their own revenues.

Therefore, Nestic believes that the formerly wildly unpopular issue of introducing a real estate/property tax as the original income of local units should be reopened. Although this story has been ''current'' in some way or another for seven years, there were problems with the readiness of the system for its introduction, as well as an enormous level of resistance of part of the public.

In recent years, Minister Maric has largely avoided the topic of property tax, emphasising that "we all know very well how the last attempt went." The hated tax was supposed to be introduced on January the 1st, 2018, as part of the tax reform, and the law on local taxes passed through two parliamentary readings, which provided for the abolition of utility fees, monument rent and taxes on holiday homes, ie merging three levies into one.

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In what will come as very welcome news for many OTC medication users across the country, the Pharmacy Chamber has stated that owing to VAT equalisation, the retail prices of OTC drugs will be reduced by an average of 17 to 18 percent.

As Marija Crnjak/Poslovni Dnevnik writes on the 12th of November, 2018, with the entry into force of the new VAT law, which will equalise the tax rate for all medicines, tax on non-prescription medicines will be reduced from 25 percent to 5 percent by the beginning of 2019, which is why their retail prices will be significantly lower and those in Croatia will hopefully cease buying their medicines over the border in Bosnia and Herzegovina, Serbia, and Slovenia.

Additionally, pharmaceutical companies can expect the growth of the sale of these drugs owing to the tax cuts on OTC medication for which the Croatian pharmaceutical sector has been calling for years.

As it is known, the VAT equalisation regards analgesic drugs, for the treatment of gastroenterological problems, drugs for help with allergies, as well as vitamins. It should be noted that it doesn't include all vitamins, only those registered as actual medicines will see a price drop.

The equalisation of the tax rate does not bring direct benefits to producers themselves, but potential benefits may be experienced by drug distributors if they raise their sales margins, this will include both hypermarkets and pharmacies.

Despite the good news, the aforementioned VAT equalisation isn't going to come into force just yet. In Croatia, the pharmacy chamber claims that the retail prices of OTC medicines will be reduced only at the beginning of 2019.

"In addition, price reductions will be welcomed at the time of seasonal illness when the need for non-prescription drugs increases. Patients have so far been able to go to neighbouring countries for drugs to lower their temperature and reduce pain, precisely because of the price difference, where the national budget also lost out,'' they say.

Pliva explains that this change will not affect their business as VAT is a neutral item for producers, but although Pliva doesn't plan to change its producer prices, they believe this will contribute to the increased availability of non-prescription drugs.

"With this, we've become closer to most European countries where, in line with the EU guidelines, two drugs, regardless of the way they are issued, have the same tax to ensure product competitiveness and market competition,'' explains Mihael Furjan, CEO of Pliva.

For Belupo's business, whose non-prescription drugs account for around 19 percent on the Croatian market, this is very good news, as they plan to strengthen their OTC medication segment in terms of their total sales.

"Therefore, Belupo, independently and as a member of CASI (Association of Non-Receptive Products Manufacturers), actively advocated equalising the VAT rate for non-prescription drugs, led by the practice of 27 European countries applying the same VAT rate, and to all medicines, irrespective of the issuing regime, and respecting the principle of neutrality when it comes to the tax treatment of similar goods,'' they explain from Belupo.

In Rijeka, JGL argues that, with a 20 percent drop in prices, this measure should certainly stimulate self-assimilation and dismantle the withdrawal of medicines from the national insurer.

The Rijeka-based company says that in their semi-annual report, they have secured the growth of total business thanks to the growth of the OTC medication segment, which is growing faster than the domestic average.

PharmaSu also expects the higher consumption of OTC drugs.

"In addition, the state has not only boosted spending, but savings on drugs which are given on prescription, and have similar therapeutic parallels in OTC status. This is mostly related to pain and cold medicines,'' said PharmaSu's Jerko Jakšić.

Expectedly, the Association of Pharmaceutical Manufacturers at the Croatian Employers' Association has naturally welcomed the equalisation of the VAT rate, and recalls that the EU Directive on VAT permits EU member states to apply a reduced rate to pharmaceutical products for the purpose of sickness prevention and treatment. They of course expect this to have a direct and positive impact on the Croatian health system.

"Non-prescription drugs are easier to come by and more widely available than prescription drugs are, there's no waiting around and seeing doctors involved. Reducing the VAT rate on OTC medicines will make them more accessible to consumers as it will lower the cost of the drug, and will therefore reduce the pressure on prescribing medications, and this will have a positive impact on the health budget, as it's self-relieving, without burdening the system,'' they point out from this sectoral Association.

Want to keep up with more news on VAT equalisation, medicine and the domestic economy? Make sure to follow our lifestyle page for more.

Click here for the original article by Marija Crnjak for Poslovni Dnevnik

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