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.
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