At its first session after Sunday's snap parliamentary election, the caretaker government on Wednesday adopted a report on budget execution in the first half of the year. Finance Minister Zdravko Maric said that the budget execution was above expectations and Prime Minister Tihomir Oreskovic added that these were the best results since 2008.
In the first half of 2016, the consolidated general government budget deficit, calculated according to the national methodology, was HRK 518 million or 0.2% of GDP, while the government budget deficit was HRK 2.4 billion or 0.7% of GDP, which was 5 billion lower than in the same period of 2015.
"We haven't seen such a low deficit, an almost balanced budget, for a long time," Maric said, adding that the budget would be kept under "maximum control" for the rest of the year. He added that he expected the present trends to continue, in which case Croatia could exit the EU's excessive deficit procedure next year, and rating agencies might upgrade the country's rating.
Budget revenues totalled HRK 56.3 billion and expenditures reached HRK 58.7 billion. Compared with the first half of 2015, revenues increased by 10% and expenditures by 0.4%. Maric noted that the expenditures were basically frozen at last year's levels despite certain unplanned items such as the cost of this election.
Maric attributed the increase in revenues primarily to higher tax revenues, but also noted a considerable increase in revenues from aid, notably from the better absorption of EU funding.
Tax revenues rose by 8.1% to HRK 34.3 billion, with VAT revenues increasing by 1% to HRK 20.5 billion, profit tax revenues going up by 21.7% to HRK 4.2 billion, and income tax revenues increasing by 21.5% to HRK 1.2 billion. Revenues from aid totalled HRK 4.2 billion or 52.5% higher than last year as a result of the better use of EU funds.
On the expenditures side, the largest item was allowances to citizens in the amount of HRK 22.6 billion, of which 18.4 billion accounted for pension allowances, which increased by 146.6 million due to indexation and an increase in the number of pensioners.
At the same time, there was a 5.5% drop in material expenditures to HRK 12.6 billion. Services expenditures decreased by HRK 157.7 million, material and energy expenditures by HRK 105.7 million and other material expenditures by HRK 105.3 million.
Financial expenditures, mostly interest on debts, shrank by HRK 443.9 million to HRK 5.4 billion.
"We tightened the belt and that produced results," Prime Minister Oreskovic said, adding that the good results were helped by GDP and investment growth and the better absorption of EU funding. He expressed hope that rating agencies would recognise the good results and upgrade Croatia's credit rating.
At the start of the Cabinet session, Oreskovic congratulated his partners, the ministers from the Bridge party and the Croatian Democratic Union (HDZ), on their election results, expressing hope that the new government would be formed as soon as possible and the necessary reforms would be launched.
Maric told the press before the session that he would stick to the tax reform plan, which would include reduction of the VAT rate and income tax, saying that the reform was necessary.