New Budget to Reveal Government Priorities

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Budget for 2016 to Be Adopted Soon

Although very cautious in his public appearances, in recent weeks Finance Minister Zdravko Marić has indicated the outline of this year’s budget. He expects GDP growth of around two percent, does not plan any changes in tax rules and has set the goal of lowering the budget deficit to three percent of GDP. As expected, the minister has been very secretive when it comes to spending side of the budget, but the main direction in generally known. It seems that the main role in the budget belongs to the EU funds. It is expected that the amount of money withdrawn will increase by 20 to 30 percent compared to last year, which would mean around 7.5 billion kunas, or 1.8 billion kunas more than last year, reports Jutarnji List on February 22, 2016.

It is known that there are two priorities for which the EU money should have been withdrawn last year, but since the former government did not meet necessary requirements, their implementation is expected this and next year. These are projects under the Operational Programme “Effective Human Resources” relating to public administration and vocational education, and their total value is about 170 million euros. However, more money means more projects, which requires more experts and increased efficiency in institutions responsible for EU projects implementation. Croatia still does not have a sufficiently strong administrative capacity to withdraw billion euros a year which is available.

According to unofficial information, the European Commission would be pleased with budget expenditures remaining at the last year’s levels since it considers that the new government does not have enough time for more important changes this year. In that case, the reduction of the deficit would be achieved only through revenue growth due to a somewhat stronger economic activity. The deficit would thus probably be lowered from 4.2 to 3.9 percent as was stated in the latest European Commission forecasts. However, the prime minister and finance minister want to send a message to investors and rating agencies that they will reduce expenses as early as this year.

If the deficit is to be reduced by about four billion kuna, with revenues covering half of that, the assumption is that the Finance Ministry much achieve savings of about two billion kuna. It seems likely that some savings will be found in social benefits. “The whole range of benefits can be means-tested, and that will be seen in the budget”, the minister said. Analysts also assume that some savings could be achieved in expenditure on interest payments, subsidies, material expenses…

The pension system will accelerate the process of delaying the retirement age or penalizing early retirements while the healthcare system is expected to rationalize spending in hospitals, the procurement procedures of medicines and supplies, and to better control the issue of sick leave for workers. Of course, there is also the issue of wages, with changes towards penalizing negligence and rewarding valuable employees. All the previous governments had avoided making these structural changes and had rather “played” with revenues, which is politically easier.

If the government wants to include all these changes in the budget for next year, it will have to work hard on their preparation. That would be useful, not only because it is politically best to make a tough decision in the first year of the term, but also because the next year will be financially much more challenging. Total financing needs will amount to 73 billion kuna, about 10 billion more than this year. The conditions under which the government will be able to borrow funds will depend on the situation on the international markets, but also on whether it will convince investors and rating agencies that it can actually implement reforms and consolidate public finances.


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