The government on Thursday unveiled the draft 2016 budget projecting revenues at HRK 114.9 billion, expenditures at HRK 122.4 billion and the deficit at HRK 7.5 billion or 2.2% of GDP.

When six extra-budgetary and local government units are added to this, the general government deficit climbs to HRK 9.2 billion or 2.7% of GDP, according to the national methodology.

According to the ESA 2010 methodology used by the EU, the deficit will be below 3% of GDP.

"We have had very successful two weeks and we are continuing our work," Prime Minister Tihomir Oreskovic said at the start of the government session.

"This is only the beginning, we are all clear about that. The more we get to know our departments, the more possibilities we will find to increase our efficiency and carry out other reforms over these four years," Oreskovic said, adding that the draft 2016 budget was a good proposal.

Finance Minister Zdravko Maric presented the budget containing 18,245 budgetary positions, divided into 53 sections and 203 chapters.

"This is an extensive document, the most important one adopted this year. We are adopting it less than two months after stepping into office," Maric said, unveiling the draft budget.

The budget is based on projected GDP growth of 2% for this year, after last year's increase of 1.6%.

"The most significant contribution to the economic growth should come from domestic demand, but foreign demand should also be positive," the finance minister said, adding that he expected the employment rate this year to go up by more than 1% and unemployment to shrink.

The draft 2016 budget foresees tax revenues of HRK 68.9 billion, which is 1.2% more than in 2015. Revenues from EU assistance programmes are forecast at HRK 9.7 billion.

Revenues from the sale of non-financial assets in 2016 are planned at nearly 603 million, mostly from the sale of state-owned apartments and other facilities and the activation of dormant state-owned property.

Total expenditure is projected at HRK 122.4 billion, which is HRK 3.8 billion more than in 2015.

On the expenditure side of the budget, the government was faced with the need to increase expenditure by an additional HRK 2.5 million as a result of contributions to the EU budget, interest rates, participation in the financing of EU projects, incentives for newborns, pensions and years of service, Maric said. 

He underscored that these were structural cuts in the overall amount of HRK 2.5 billion that affected all segments other than salaries and pensions.

The government plans to cut material expenses by HRK 260 million, subsidies by HRK 550 million, aid grants by 300 million, household allowances by HRK 560 million, other expenses by HRK 550 million, and procurement of non-financial assets by HRK 280 million, most of which relates to the Defence Ministry.

Household allowance cuts would affect income-related welfare allowances and such allowances would partly be directed at EU funds. The veterans budget from general sources would not be reduced, subsidies for the transport sector would be cut, while subsidies for agriculture would remain broadly unchanged.

As for salaries, provisions were made for an annual increase of 0.5% per year of service, but not for a 6% pay rise demanded by unions.

The government's economic programme is based on two key areas -- public debt stabilisation and reduction, and structural reforms -- so as to strengthen the foundation for economic growth.

The stabilisation and reduction of the public debt will be based on fiscal consolidation, namely on reducing the budgetary deficit, activating state-owned property and encouraging the economic recovery. 

The government will focus its efforts on intensifying the privatisation of state-owned companies, with the exception of those of strategic importance.

Minister Maric said that the government had come to grips with the galloping public debt, adding that debt was expected to stagnate this year and decrease thereafter.

According to the projections, the public debt to GDP ratio at the end of 2015 was 86.9% of GDP, while at the end of this year it is expected to drop to 86.8% of GDP. By 2018, public debt is forecast to fall to 84.7% of GDP.

Prime Minister Oreskovic said that reforms aimed at delivering long-term economic results would be presented soon.

(EUR 1 = HRK 7.578867)

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