HDZ, SDP agree stabilisation of public finance crucial for higher credit rating

Representatives of the two biggest parties on Thursday took part in the first of several round tables which the Croatian Employers Association (HUP) is organising ahead of the September 11 early parliamentary election.

Tomislav Coric of the Croatian Democratic Union (HDZ) and Boris Lalovac of the Social Democratic Party (SDP) said the euro would not be introduced any time soon, not before 2021 according to Lalovac, or in the next seven or eight years according to Coric.

Although the HDZ advocates introducing property tax, Coric said thatwould not happen before land registers were put in order, which calls for a big job. He said owners of only one property would be exempt from paying property tax. Owners of a number of properties would pay much higher taxes.

Lalovac said introducing property tax was a difficult and demanding job, so the SDP doesnot plan to impose it in the next term. He said that because of numerous technical prerequisites land registers could not be put in order in one term. The round table heard that, according to some estimates, Croatia loses HRK 5-10 billion annually because land registers are in disarray.

Coric and Lalovac underlined the importance of fiscal consolidation because 2017 would be a tough year and of the importance of political stability.

As for state property management, Coric said local units should manage farmland and that abandoned military facilities represented a big potential for investment. The HDZ would retain state ownership over some companies of strategic importance, such as the forest, road and water operators, while seeking buyers for the rest.

Lalovac agreed, saying another problem lay in the many facilities owned by local government. He said that over the past 25 years the government had been a poor manager.

Lalovac said fiscal consolidation was a top subject both for Croatia and the European Union. He said it was Croatia's misfortune that interest rates had a high share in total expenditures. He advocates generating a primary surplus and stabilising public finances.

Coric said the beginning of stabilisation of public finances, in parallel with economic growth which began in 2015, had saved Croatia from further credit rating downgrades. "However, we must not stay at this level credit rating. We must do our best to increase it, which calls for stable public finances and economic growth," he said, adding that money should be spent more rationally. He said the most important thing was to find a way to employ as many people as possible.

Coric said the HDZ would effect all tax changes in the first months of 2017 and change VAT in 2018. The HDZ plans to cut profit tax from 20 to 18% and to 12% for certain categories, because Croatia has the highest profit tax in the neighbourhood, he said, adding that tax cuts would be a signal to entrepreneurs to spend part of their profits on something else, hopefully in investing it.

The HDZ wants to raise living standards with income tax breaks. Coric said the party realised that the 25% VAT rate must be cut, but that each cut by one percentage point meant HRK 1.5 billion less in budgetary revenues.

Lalovac said the SDP would not cut VAT for now but would raise the non-taxable income from HRK 2,600 to HRK 3,000 and change tax brackets so that a majority of citizens would pay less taxers and have more money to spend.

"The people in the 40% tax bracket are on the most part young people with university degrees employed in export-oriented industries. We must see that young people don't leave because of this, in my opinion, punishment tax, and also because we are not offering a quality public administration service for that 40%," Lalovac said.

Last update: Thu, 18/08/2016 - 15:40


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