First major proposal bring first rift to the ruling coalition.
One day after MOST leader and Speaker of Parliament Božo Petrov said that MOST had not yet “chosen side” and decided whether to block the tax reform together with Tourism Minister Cappelli or whether to support Finance Minister Zdravko Marić who wants all the laws to be adopted in the next two months, unofficial sources from MOST claim that the entire tax reform could be postponed for a whole year, reports Večernji List on November 9, 2016.
A high-ranking member of MOST says that he is not sure that the legislative proposals would be debated this Thursday during a regular meeting of the cabinet and mentions the possibility that the debate on the package could be extended into the next year. After Finance Minister Marić presented all the elements of legislative changes to MOST members, they submitted a series of comments this week which are quite comprehensive and largely related to VAT changes.
MOST reportedly accepts the criticism from the tourism sector that higher VAT could jeopardize investments, but is also not satisfied with the abolition of the lowest rate of VAT, since that would lead to increased prices of bread, milk and other products which are now taxed at 5 percent.
The Finance Minister confirmed that he had a meeting with MOST, but only said that it was one in a series of reasoned conversations. “We can conclude that the tax reform as such will move forward”, said Marić. On the other hand, Petrov said that “we should not think only about the deadlines” and that there should be enough time for a reasoned discussion. However, deadlines are important because, if the laws are not adopted in the next two months, they will not be able to take effect from January next year.
All this shows that MOST probably is not sure what to do next. It does not want to publicly oppose its larger coalition partner, but also does not want to take political responsibility for the proposed solution. If it blocks the reform, MOST would become a hero for catering and restaurant sector, but would also draw criticism from other interest groups which would benefit from the tax reform.
The tourism sector is firing from all weapons, announcing protests, layoffs and reduction in investments. At the present moment, in addition to the opposition from SDP, MOST is their strongest ally in the fight against reform. The question is whether Prime Minister Plenković will accept changes to reform proposals. According to information obtained from HDZ, the answer is – no. HDZ accepts arguments made by the Finance Minister that the reform package should not be changed.
Economist Željko Lovrinčević, one of Marić’s closest associates, said that no one should have any doubts about benefits brought by the tax package. He argued that the restaurant and catering services accounted for only 20 percent of tourist consumption. “Our assessment is that Croatia can take it. Even if there is a price increase of one percentage point, we would still be cheaper than our competitors”, said Lovrinčević.
Branko Grčić (SDP) said that it was senseless to raise taxes for the sector which is the main driver of the economy. He shares Tourism Minister Gari Cappelli’s view that the changes to VAT should be postponed for a year.
Speaking on Wednesday, Prime Minister Andrej Plenković said that he would do everything to reach a consensus when it comes to the tax reform. “The government will support the laws tomorrow and submit them to Parliament, where MPs and parliamentary groups will be able to propose amendments. This is a regular process by which everyone can try to improve legislative proposals”, said Plenković to reporters.