Government Drafts New National Reform Programme

Total Croatia News

ZAGREB, April 25, 2018 – The National Reform Programme for 2018, which the Andrej Plenković cabinet is expected to adopt on Thursday, is designed to ensure growth, employment and better living standards as the government’s priorities, according to the document seen by Hina on Wednesday.

The draft programme and a convergence plan are expected to be discussed by the government on Thursday.

The convergence plan projects Croatia’s growth in 2018 at 2.8%, and 2.7% in 2019, while a growth rate of 2.5% is expected for 2020 and 2021.

A source in the government describes this framework as conservative, explaining that in 2016 and in 2017 the results were better than expected and that the conservative approach had an impact on the investment community. The focus will be on investments rather than on government spending as a driver of growth.

The tax reform yielded results already in 2017 when private investments rose by more than seven percent, the source said and pointed to the need to reduce Croatia’s dependence on imports that so far has neutralised the effects of exports in GDP growth trends.

When it comes to the budget for this year, the government is sticking to its original plan that envisages a budget deficit-to-GDP ratio of 0.5%. This ratio is expected to contract to 0.4% and zero in 2019 and in 2020 respectively. In 2021, Croatia plans a budget surplus of 0.5%.

Concerning the public debt, the baseline scenario for its reduction envisages economic growth and state property consolidation and activation. The government is set to cut the debt-to-GDP ratio to 66% by the end of its term, while the government’s programme initially put this ratio at 75%. At the end of 2017, Croatia’s public debt-to-GDP ratio was 78%. In 2018, it is expected to fall to 75.1% and to 72.2% in 2019, further to 69.1% in 2020, while in 2021 it is expected to drop to 66%.

The government is determined to cut the cost of interest on the country’s borrowing to below two percent of GDP. In 2015, the cost of interest amounted to 3.3% of GDP and in 2017 it fell to 2.7%.

The draft National Reform Programme contains a set of measures to boost competitiveness, including the easing of the tax burden. However, these elements should be further elaborated.

Regarding the profit tax, the government believes that there is some room for its reduction but that this requires a thorough analysis and discussion. The new reform programme makes no mention of property tax, however, a reduction of the standard Value Added Tax rate is to be discussed.

According to available information, the National Reform Programme includes the restructuring of the transport sector, that is, of roads and the state-owned HŽ railway operator, the search for a strategic partner for Croatia Airlines and regulations on the maritime domain and land for tourism purposes, on which bills are being drafted.

With regard to the restructuring of the railway sector, a comprehensive programme is being prepared to improve the operation of HŽ Infrastruktura and HŽ Cargo. Similarly as for the road sector, a project for the railway sector is being prepared with the World Bank as well.

The National Reform Programme also envisages a reform of the state administration and a bill on that matter is being fine-tuned, which means that there is a plan to open dialogue with the social partners. The new legislation on the state administration reform that is being worked on envisages also de-politisation of the state administration as well as regulation of government employees’ salaries.

The new legislation envisages the introduction of 12 salary brackets and provides for promotion based on performance, which will be evaluated. The new laws also envisage one-off rewards as well as the possibility of demotion.

The government must send the National Reform Programme and the Convergence Programme to the European Commission by the end of April.

The Reform Programme defines the state of affairs and plans regarding the implementation of the government’s key structural policies, while the Convergence Programme defines the key characteristics of macroeconomic and fiscal policy frameworks.

These activities are part of the process of obligatory reporting and adjustment of EU member countries’ fiscal policies to the jointly defined goals and regulations of the EU, and non-compliance with them results in sanctions, including the freezing of EU funds for a member country.


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