Croatian Budget, Political and Business Summary: March 11

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An overview of the main political and business stories in Croatia, including a more in-depth look at yesterday’s budget announcement, part of the Total Croatia News premium content subscription service, delivered to client inboxes by 09:00 each weekday morning. Monday will be the last posting such as this on the site. If you would like to start a free one-week trial or learn more about the service, contact us at [email protected] 

Zagreb, March 11, 2016.

Budget 1
Politics 3
Business 4
Analysis 4
Bulletin 5
Daily Agenda 5


Government Presents 2016 Budget Proposal

The government, on Thursday, presented a draft of the 2016 state budget, in which revenue is planned in the amount of 114.9 billion kuna, while expenditure should reach 122.4 billion kuna. The deficit is planned in the amount of 7.5 billion kuna, or 2.2 percent of GDP. If six extra-budgetary funds and local government budgets are included, the deficit of the general government increases to 9.2 billion kuna, or 2.7 percent of GDP according to national methodology. According to EU methodology ESA 2010, the budget deficit will also stay below 3 percent of GDP. “We had two very successful weeks, but let’s keep working,” said Prime Minister Tihomir Orešković. The government based the budget on estimates that GDP would increase by two percent this year, after it grew by 1.6 percent last year. Total expenditure amounts to 122.4 billion kuna, which is 3.8 billion kuna more than in 2015. On the expenditure side, the government had to deal with an automatic increase in the amount of 2.5 billion kuna due to increased contribution to the EU budget, interest rates costs, participation in financing of EU projects, incentives for newborns, and an increase in the pension bill. Savings are planned in material expenditures (260 million kuna), subsidies (550 million), grants (300 million), transfers to citizens and households (560 million), other expenses (550 million), and procurement of non-financial assets (280 million). As far as subsidies are concerned, changes are expected in the transport sector, while agriculture should not see any major changes. The wage bill does not include funds for the six percent increase demanded by the public sector trade unions, but only for a regular annual increase of 0.5 percent per year of service. According to projections, the budget deficit in 2017 should fall to 2 percent, and in 2018 to 1.8 percent of GDP. Finance Minister Marić pointed out that the government expected the stabilisation of public debt this year, as well as its reduction in the coming years.

Budget 2016: Winners and Losers

Government departments which will receive less money than last year include: Finance Ministry (6.9 billion kuna or 15.6 percent less than last year), Defence Ministry (372 million kuna; 8.5 percent), Ministry of Labour and Pension System (102 million kuna; 0.2 percent), Ministry of Science, Education, and Sports (158.1 million kuna; 1.1 percent): Justice Ministry (135.3 million kuna; 5.6 percent), Veterans Affairs Ministry (34 million kuna; 3.5 percent), Ministry of Foreign and European Affairs (89.9 million kuna; 13 percent), Tourism Ministry (31.1 million kuna; 15.4 percent). Departments which will this year receive more money than last year include: Health Ministry (1.3 billion kuna or 17 percent more than last year), Interior Ministry (307.6 million kuna; 6.5 percent), Entrepreneurship Ministry (378 million kuna; 44.2 percent), Economy Ministry (359.8 million kuna; 24.2 percent), Ministry of Environment and Nature Protection (312.2 million kuna; 32.5 percent), Ministry of Agriculture (245.3 million kuna; 3.7 percent), Ministry of Maritime Affairs, Transport, and Infrastructure (277.6 million kuna; 4.8 percent). The budget of the Office of the President has been reduced by 6.1 percent to 38.6 million kuna. The budget of the Cabinet Office has been increased by 4.2 percent to 291.3 million kuna.Image

Tourism Minister Is Not Worried With Budget Cuts in His Ministry

The reduction of the Tourism Ministry budget should not affect the tourist season, said Tourism Minister Anton Kliman. According to the 2016 budget, the Tourism Ministry budget will be reduced from 202 million kuna in 2015 to 171 million kuna this year. “The budget is what it is, and we have to share the fate of the entire country,” said Kliman noting that the activities of the Ministry are not in question. “We will definitely meet the challenges that lie ahead and improve our position in the market,” he stressed.

Government to Cut Subsidies for High School Student Transportation

In the 2016 budget, the government proposed a reduction of state subsidies for the transportation of high school students who travel to school by public transport, said the Minister of Science, Education, and Sports Predrag Šustar. The share of the state in co-financing of transportation will be reduced from 75 to 50 percent, while vulnerable groups will retain full funding. This will save the budget 94 million kuna a year. Šustar announced that, starting from the next school year, transportation subsidies will be means tested.

Members of Parliament React To 2016 Budget Proposal

Branko Grčić (SDP) said that, at first glance, the 2016 budget does not contain any major changes on the revenue and expenditure side in relation to 2015. “We took a quick look at the budget and in fact there are no major changes compared to what we did last year,” said Grčić. He pointed out that some new expenditure had been compensated for by saving on other items, but that at the moment it was not clear how these savings would be achieved. “There are savings in social transfers, and I wonder how they will do it. There will be changes to various laws and reductions in subsidies to the economy, which can further slow down economic growth,” said Grčić. Milorad Pupovac (SDSS) said that, if someone thinks they can suppress minorities by reducing funding for minority institutions, that that was not going to happen. Pupovac is president of the Serbian National Council, whose budgetary allocation has been reduced from 7.5 million kuna to 1.8 million kuna. Miodrag Demo (BM 365), Chairman of the Committee on War Veterans, said he would not allow a decrease in the budget for Veterans Affairs Ministry. Ivan Lovrinović (MOST) said that the first year in office is the most important year for reforms. “I do not like statements that we need to borrow more money. MOST has said that it would not go down that road. But I cannot say anything with certainty until we discuss every budgetary item in Parliament.” Asked if the current budget proposal could be changed in Parliament, Lovrinović said: “Why not? If there are good reasons, we will certainly accept what is reasonable. Anybody can borrow money and spend it. MOST will insist on rationalisation and big savings.” He said that he believed he had the support of all 15 MPs from MOST.

Analysts: No Reforms Visible in the 2016 Budget

Analysts say that the 2016 budget is not a reform budget, so they expect real reforms to be presented in the government’s economic programme, which the European Commission will evaluate in May, and in the next budget for 2017. The government expects GDP to grow by around two percent this year, but analysts are more cautious. “I think that this assessment is very optimistic, because it is based on a forecast of an increase in both domestic and foreign demand,” said Hrvoje Stojić, Director of the Economic Research Department of Hypo Alpe Adria Bank. Stojić said that the government should have demonstrated more courage, political willingness and execute some cuts on the expenditure side. “But, if the ‘price’ for freezing the wage bill and social transfers is to avoid the risk of an increase in public sector wages by six percent, then we can say that the expenditure side of the budget, given the short deadline, has been set prudently,” said Stojić. Economic analyst Damir Novotny is not satisfied with the 2016 budget because he believes that this is just a continuation of bad practices from the previous 15 years. He said that the budget should have incorporated some of the recommendations of the European Commission. “There are mild savings visible, but there is no real shift in the approach to the budget,” said Novotny. “We have completely clear and detailed recommendations from the Commission which should have been followed, but this budget does not show this,” said Novotny.

Croatian Employers Association and Croatian Chamber of Economy Comment on the Budget

The Croatian Employers Association (HUP) believes that the primary focus in the budget was deficit reduction and the slowing down of further growth of public debt. They believe the biggest risk for the budget is the projected rate of economic growth, noting that significant savings are possible only with implementation of reforms. “The savings which were achieved in this budget were made on the principle ‘cut everywhere by a little bit’, so it is likely that these were the maximum savings which could be achieved,” said the CEO of HUP Davor Majetić. The Croatian Chamber of Economy (HGK) said that the 2016 budget was the first systematic step towards fiscal consolidation. “On the revenue side of the budget there are no significant changes, while on the expenditure side there are some shifts which are still not enough,” said HGK. “We consider these planned savings only as a starting point for further reform measures that will enable more efficient and cheaper functioning of the state, and open the possibility of changes on the revenue side of the budget in order to relieve entrepreneurs and stimulate employment, investment, and economic growth.”

Association of Croatian Trade Unions against the Budget Proposal

The Association of Croatian Trade Unions believes that the 2016 budget proposal is yet another budget which brings cuts and sacrifices, suppresses the growth of production, consumption, and national economy, and represents the continuation of policies pursued by the previous government. President of the Association Vilim Ribić said that in the budget there are no reforms concerning public companies, no cuts where they should have been made, and no reforms of state agencies. Why should there be any reforms when there are teachers, scientists, nurses, and doctors who can bear the brunt of any savings, asked Ribić and added that projections for the following three years, which see salaries for public services be kept frozen, are completely beyond reason.


Government Proposes Dismissal of the Council for Electronic Media

The government rejected the report on the activities of the Council for Electronic Media and the Agency for Electronic Media in 2014. It proposed to Parliament to dismiss all members of the Council due to serious flaws in the execution of their legal obligations. Culture Minister Zlatko Hasanbegović said that the report was not complete and that the Council and the Agency had not met their legal obligations. The Council for Electronic Media responded that it had continually warned Croatian Radio Television (HRT) about its legal obligations, in particular about the need to keep separate accounting procedures for revenues and expenses incurred through public broadcasting and commercial activities. Croatian Journalists’ Association (HND) said that the governments’ decision was a new step towards full political control of the media. HND assessed this as yet another in a series of moves which confirm that the authorities do not treat the media as one of the foundations of a democratic society but rather as spoils of war.

OSCE Representative “Seriously Concerned” for Media Freedoms in Croatia

Dunja Mijatović, representative of the OSCE for media freedoms, on Thursday expressed “serious concern” for the freedom of media and independent regulatory bodies in Croatia, after the recent dismissal of the Director General of Croatian Radio Television and the proposed dismissal of members of the Council for Electronic Media. “These decisions cause grave concern for the overall state of media freedoms in the country,” said Mijatović. “I beseech the authorities to take urgent measures to stop this trend and to do everything in order to preserve the independence of public television and the regulatory body,” she added.

Veteran’s Protest Leader Becomes a Candidate for Veterans Minister

Đuro Glogoški, the leader of the ongoing veteran’s protests, has confirmed that he is one of the candidates to become the new Minister for Veterans Affairs. He has already met with the Prime Minister. “We had an honest meeting. I am ready again to make sacrifices for Croatian veterans and for the better future of the Croatian people and the Croatian state,” said Glogoški. When asked whose support he had, Glogoški answered that he was supported by “many veterans who have passed through the protest tent and by many veterans’ associations.” “I also believe I am supported by a large part of the Croatian people who recognise what Croatian veterans did during the war.” After meeting with war veterans on Wednesday, the Prime Minister announced that he would choose the next Minister by the end of this week, or early next week at the latest.

Karamarko: Brkić Is the Only Candidate for Veterans Minister

HDZ president and First Deputy Prime Minister Tomislav Karamarko said that Milijan Brkić was the only HDZ candidate for the Minister for Veterans Affairs. He added that MOST had agreed to a party division among Ministries and that the Prime Minister might have made a mistake when he invited the veterans’ associations to nominate their own candidates. “It was maybe a mistake, maybe not, maybe the Prime Minister was talking about HDZ members. We respect all candidates, they are our friends, but I say this: HDZ has one candidate,” said Karamarko. When asked whether that meant that MPs from HDZ would not vote for a candidate who would be chosen by the Prime Minister, Karamarko replied that it was only natural they would support just their own candidate.

Prime Minister Comments on Speculation about Divisions in Government

Prime Minister Tihomir Orešković dismissed speculation about divisions and discord in the government, adding that there is an open dialogue, and also unity on important issues such as the adoption of the state budget and the implementation of reforms. He dismissed speculation that he was obstructing the HDZ candidate for Minister for Veterans Affairs, Milijan Brkić, saying that he met with Brkić two days ago, but adding that the decision on the new Minister was a process which required time. “He is a candidate, but I think that in every democracy it is vital that we have several candidates, and in the end we can choose the best person. This is, in my opinion, just a process. I hope that we will make a decision quite soon,” said Orešković in an interview with Croatian Radio Television.

Parliament Discusses Implementation of Constitutional Law on National Minorities

The right to bilingualism, access to the media, and representation in government bodies are areas in which national minorities had the most problems, said Members of Parliament on Thursday during a Parliamentary debate on the implementation of the Constitutional Law on National Minorities in 2014. For many years, there have been similar problems in the exercise of some minority rights, including the use of their language and script, it was concluded during a meeting of the Parliamentary Committee on Human Rights and Rights of National Minorities, which asked the government to propose to Parliament within 90 days amendments to the Law on the Use of Minority Languages ​​and Scripts, in accordance with the decision of the Constitutional Court made in August 2014.


Government Publishes Plan to Address Macroeconomic Imbalances

The government has announced a plan that should address macroeconomic imbalances and includes a series of reforms and measures, as well as deadlines for their implementation. The economic programme of the government involves efforts in two key areas: the stabilisation of public debt, and structural measures. The government states that the stabilisation of public debt is based on a three-point approach through fiscal consolidation, activation of unused state property, and economic recovery stimulation. The government will focus its priorities on the programme for structural reforms, primarily in areas of public finance management, healthcare system, labour market, public administration system, investment climate, and use of EU funds.

Transport Minister Speaks About EBRD Loan for HAC

Minister of Maritime Affairs, Transport, and Infrastructure Oleg Butković said that the European Bank for Reconstruction and Development’s (EBRD) loan to Hrvatske Autoceste (HAC) will create room for strong restructuring of the company in order to become more stable and efficient. At its session on Thursday, the government decided to initiate negotiations in order to receive an EBRD loan worth 250 million euros, of which 200 million euros would be used for this year’s repayment commitments, while 50 million euros would be spent on the restructuring of HAC. This year’s obligations of HAC amount to 580 million euros, and Butković said that part of this amount will be paid with this loan which would have a favourable interest rate.

Raiffeisen Group Denies It Caused Financial Damage to 100,000 Croatian Citizens

Raiffeisen Group has denied claims by Ivica Marković from the RBA Victims initiative that it caused financial damage to 100,000 citizens of Croatia. It said that Croatian citizens in Austria were approved a total of 3,000 loans, worth an estimated 260 million euros. “The figure of 100,000 clients reported in the media has no basis in actual facts. Unfortunately, despite all efforts to resolve the situation in the best way possible for all parties involved, a certain group of people led by individuals with private interests constantly spreads inaccurate information,” said the Group in a statement. It added that, in the case of non-payment, citizens’ debts could increase significantly in accordance with Austrian laws. “These are Austrian loans given to Croatian citizens, so Austrian law is applied. The calculation of interest on late payments is the same as for Austrian citizens, where failure to pay is an exception rather than a rule,” the statement said.

Unions to Start Negotiations with Government about Salary Increase on 21 March

President of the Association of Croatian Trade Unions Vilim Ribić said that the negotiations with the government about a 6% increase in wages for the public and civil services will begin on 21 March. He noted that funds for the increase have not been provided in the new budget, although the employees have the right to the increase starting on 1 January. “We are being responsible and we want to solve this serious problem which the government has not approached in a serious way,” said Ribić. He welcomed the attendance of Prime Minister Orešković at the session of the Economic and Social Council, but added that the Prime Minister’s agility, energy, and vision cannot be successful if there is no social dialogue on issues such as the budget. Ribić expressed his astonishment with the appointment of Davor Huić, a former journalist and co-founder of the Lipa Taxpayers Association, as a special advisor to the Prime Minister, because he considers him to be a “neoliberal Taliban” who wrote pamphlets against unions. He is convinced that Orešković did not know whom he appointed, or he would not had said that the unions are an important partner to government.


Reforms Can Best Be Seen Towards the Poor – They Will Get Less

Ivanka Toma analyses the 2016 budget (published in Jutarnji List on 11 March 2016).

All those who were waiting for the budget to see what kind of policies the government would pursue have found out that the new government has no reforms planned and no vision for economic development. It is visible that the optimism of the Prime Minister and Finance Minister is based on the same indicators which Zoran Milanović used in his election campaign. Actually, most of the budget looks like the former government wrote it itself. All the projects are just a continuation of the projects initiated by former Ministers. Finance Minister Marić says that salaries and pensions will not be cut, but he forgot to say that there would be cuts for those who have the least. When you see some of the items in the budget, even Milanović seems like a social democrat. All this shows us that the policies of the new government will not be favourable towards workers and the poor.


Government Dismisses Customs Administration Director

In a closed session, the government on Thursday dismissed Zlatko Grabar as Assistant Finance Minister and Director of Customs Administration, announced the government. Grabar was appointed to the post in February 2012 by the previous government.

HDZ Secretary General Denies He Told Anyone to Leave Croatia

HDZ secretary general Milijan Brkić said that he had not told anyone to “leave Croatia,” especially not because that someone was a Serb, adding that the so-called “ethno-businessmen,” who use their ethnicity to promote their political and material interests, do not have a monopoly on the “Serbian cause” and that they cannot speak on behalf of all Croatian citizens of Serbian nationality. Brkić was referring to the controversy caused by his statements about Milorad Pupovac, president of the Serbian National Council. Pupovac replied on Thursday that he would “return all labels back to sender,” because “they might help him become a member of the government.”

Parliamentary Committee on National Security Rejects Intelligence Reports

Chairman of the Parliamentary Committee on Interior Affairs and National Security Ranko Ostojić (SDP) said that on Thursday the committee rejected reports by the Military Security and Intelligence Agency and the Office of the National Security Council on actions taken related to possible violations of law and protection of human rights. Ostojić told reporters that there were no dissenting opinions among the committee members. Most members of the committee abstained or were against the reports, he added.

Government Rejects Demand to Provide Written Report by Lawyers Consulted in the Crnoja Case

The government on Thursday rejected a demand by Member of Parliament Peđa Grbin (SDP) to provide a written opinion of legal experts who were hired to assess the case of the former Minister for Veterans Affairs Mijo Crnoja, adding that the MP had already received a clear answer that the legal experts were hired to provide an oral opinion and that there was no need for a written opinion. “This response is a proof that First Deputy Prime Minister Karamarko lied when he stepped in front of reporters and said that he had a document about whether Crnoja was guilty or not,” said Grbin.

Student Dormitory in Varaždin to Be Built Using EU Funds

More than 141 million kuna has been allocated from EU funds for the construction of the new building of the Student Dormitory in Varaždin, and this is the first European money for the construction of a new student dormitory in Croatia, said the director of the Varaždin Student Centre Nenad Milijaš at the presentation of the project. The new student dormitory will be located within the university campus, and it will have 600 beds in 243 rooms on five floors. The construction is expected to be completed during the 2017/2018 academic year.

Daily Agenda – Friday

Parliament will continue its second session. It will debate the Report on the Implementation of the National Strategy and Action Plan on Combating Drug Abuse in 2014.

SDP will hold a press conference in Parliament on the topic “Draft of the 2016 Budget”. Speakers will include MPs Branko Grčić, Boris Lalovac, and Milanka Opačić.

The Centre for Peace Studies and a group of economists will hold a press conference “Assessment and Prospects of the Budget and Fiscal Policy in Croatia”. Speakers will include economists Hrvoje Šimović, Hrvoje Mačkić, and Valentina Vučković and Sandra Benčić from the Centre for Peace Studies.

The Dobrodošli (Welcome) and Are You Syrious? initiatives will organise a protest against the closure of the Balkan refugee route.

Preporod Union will hold a press conference on the topic “Parents and Teachers Are the Biggest Losers of the 2016 Education Budget” and will analyse the Education Ministry budget for this year.

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