The revenues of the 2016 budget are planned at HRK 113 billion and expenditures at HRK 120.4 billion, with the deficit amounting to about HRK 7.5 billion, or 2.2 percent of GDP, according to guidelines for drawing up this year's budget which the government adopted on Thursday.

When extrabudgetary funds and the consolidated budget of local government units are added to that, this year's deficit should amount to HRK 9.2 billion or 2.7% of the projected GDP. Even according to Eurostat's ESA 2010 methodology, it would not exceed 3% of GDP, said Finance Minister Zdravko Maric.

The guidelines are based on economic growth projections of 2%.

"This year we expect a mild acceleration of economic growth to 2%, primarily thanks to the contribution of domestic demand," Maric said, adding that the projections were very close to those of the European Commission, which recently increased the forecast of Croatia's GDP growth for 2016 from 1.4 to 2.1%. "The projections are realistic. Until now, the practice was to exaggerate macroeconomic projections and, consequently, the budget's expenditures side. That turned out not to be a good strategy."

After two years of deflation, a 0.1% inflation is expected this year.

Maric said the plan is to reduce unemployment to below 16% this year and below 14% by the end of the projected period. He said employment growth would be monitored too.

The biggest revenue increase is expected from 1.4% higher tax revenues, mostly VAT (+2.1%), to about HRK 44 billion, alongside higher consumption, Maric said.

Revenues from excises and income and profit taxes are expected to increase 6%, while revenues from contributions are expected to decrease.

The most substantial increase (78.5%) is expected from European Union funds, while other revenues are expected to decrease by 1.8%, mainly due to lower revenues from concessions, Maric said.

Expenditures, which he said were the key instrument of fiscal consolidation, are planned at HRK 120.4 billion, HRK 2.4 billion more in relation to the preliminary execution of the 2015 budget. The increase called for cuts and consolidation within the budget, Maric said.

The higher expenditures refer to the national contribution to the EU budget, which is HRK 500 million higher, interest rates (+HRK 230m), the national component in the co-financing of EU projects (+HRK 450m), the indexation of pensions (HRK 400m), incentives for newborns (HRK 100m), the refugee mechanism for Turkey (HRK 22m), and Schengen (HRK 90m), Maric said.

Prime Minister Tihomir Oreskovic said the guidelines were only the beginning and that there was a lot of work ahead for the government. "This is a process in which it is essential that we have changes. Keeping the status quo would be easiest and one should make change become the status quo. When changes are made, there's always fear, and it's up to us to explain through dialogue why some reforms are necessary and where they lead."


(EUR 1 = HRK 7.6)

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