Economists Criticize Increased Government Spending

Total Croatia News

Budget proposal for 2017 provides for a substantial increase in spending for some sectors.

The government announced that the budget for next year will be about 5 billion kuna larger than in 2016, and the growth of expenditures (4.7 percent) is higher than the expected rate of GDP growth (3.2 percent), which means that the nominal increase in the budget deficit will stand at almost 1.5 billion kuna. Such proposal has not been supported by economists, as well as by representatives of trade unions, who expected more money for their members’ wages, reports Večernji List on December 1, 2016.

“The government has increased spending on veterans and the Defence Ministry too soon, which will weaken its bargaining position with the trade unions. The indexation of pensions will also be implemented too soon, because it is very difficult to expect others to give up on their demands after the government had already accepted demands from other interest groups”, said Željko Lovrinčević from the Institute of Economics. He added that budget spending should have been kept under control until deficit reached a safe zone.

“I expect that, in the end, the budget expenditures will be 600 to 700 million kuna higher than planned. That means that the deficit will be slightly above 2 percent of GDP, but I would be happier if it would fall below 1 percent, since it is expected there will be deterioration of financing conditions”, said Lovrinčević. The US Fed should continue with an increase in interest rates later this year, and it could be followed by the European Central Bank by the middle of next year.

“This is a political decision which is not good because it has not taken into account that accepting some demands will have detrimental effect on negotiations with trade unions”, concluded Lovrinčević. It will be hard for the government to argue that there is no money for wage increase, when it has increased indexation of some pensions and accepted new financial claims of veterans.

Vilim Ribić, president of the Trade Union of Science, sharply attacked the budget increase for defence and said that the data on defence spending are different than what has been announced by Defence Minister. “Publicly available data from Eurostat show that the our defence spending is stable, and that the current 1.3 percent of GDP is higher than the EU average (1.2 percent) and higher than in comparable countries. In these countries, the defence spending has been steadily declining and is currently at 0.9 percent of GDP”, said Ribić, adding that Slovenia and the Czech Republic in 2015 allocated twice as much as Croatia for research and development, while spending only half as much for defence (Slovenia 0.7 percent, and the Czech Republic only 0.6 percent of GDP).

Josip Tica from the Faculty of Economics in Zagreb believes that the government’s GDP forecast for the next year is too optimistic. “Italy is our most important trading partner, migrant route is going through Croatia, nobody knows what will happen with oil prices, and there are problems with European integrations, which are one of the main driving forces of Croatia’s recent growth. I hope that 2017 will be a continuation of the current trend of anaemic recovery, with a very high likelihood of strong fluctuations due to a whole range of political instabilities”, said Tica.


Subscribe to our newsletter

the fields marked with * are required
Email: *
First name:
Last name:
Gender: Male Female
Please don't insert text in the box below!

Leave a Comment