The 2016 draft budget which the government sent to parliament today is balanced, optimised, very good and could favourably impact Croatia's credit rating, Prime Minister Tihomir Oreskovic said on Thursday.

"We saved HRK 2.5 billion, which isn't a little. I think we adopted a balanced and optimised plan," he said at a government session, adding that the first draft budget in the new government's term was only the beginning and that an even better budget policy and increased efficiency would follow after the ministers were better acquainted with the state of affairs in their departments.

Under the draft, revenues are planned at HRK 114.9 billion, expenditures at HRK 122.4 billion and the deficit at HRK 7.5 billion, or 2.2 percent of GDP. When six extra-budgetary funds and local self-government units are added to that, the general government deficit, according to the national methodology, climbs to HRK 9.2 billion, or 2.7% of GDP, while according to the European Union's ESA 2010 methodology, the deficit is expected to be below 3% of GDP.

Finance Minister Zdravko Maric said the budget was proposed in accordance with a 2% economic growth projection for this year, mainly thanks to higher personal consumption and exports, a drop of survey unemployment to 15.8% and a 1% rise in employment.

The revenues are 4.7% higher than in the preliminary execution of the 2015 budget and 6% higher than those planned by the previous government last October.

According to the government's projections, tax revenues are expected to rise 1.2% from 2015, VAT revenue would total HRK 44.4 billion, while all special taxes and excise duties would bring HRK 14 billion into the state coffers. Income tax revenue would total HRK 2.1 billion, profit tax revenue HRK 6 billion and contributions HRK 22.1 billion.

Maric said that aid, mainly from the EU, and planned at HRK 9.7 billion, had the biggest impact on revenue growth. Other revenues are planned at HRK 13.6 billion, while the sale of nonfinancial assets is expected to bring HRK 603 million.

Expenditures are HRK 3.8 billion higher than in the preliminary execution of the 2015 budget. Maric said expenditures from general sources were planned at HRK 103.4 billion and were frozen in relation to the preliminary execution of the 2015 budget. "This means that the nominal amount of budgetary expenditures from general sources, that which creates the deficit, has no growth."

Maric said the government had to plan HRK 2.5 billion in new expenditures because of pension indexation, payments into the EU budget, and a 0.5% salary increase per year of service. He said salaries and pensions were not touched.

Under the government's plan, HRK 260 million would be saved on material expenditures, HRK 550 million on subventions, HRK 300 million on aid, HRK 560 million on outlays for households, HRK 550 million on other expenditures, and HRK 280 million on the procurement of nonfinancial assets. Maric said most of the savings were structural and that they would be felt in the medium term.

He said the HRK 7.5 billion deficit was the lowest since the pre-recession year 2008.

Speaking of 2017 and 2018, he announced a further reduction of the deficit and a curbing of the "galloping public debt." He said this year's budget and other activities would stabilise the public debt's share in GDP, after which it was expected to decrease.

According to the 2016 draft budget, public debt would drop to 86.8% of GDP and to 84.7% at the end of 2018.

In this year's budget, the ministries of finance; defence; science, education and sports; labour and pension system; social policy and youth; justice; war veterans; foreign affairs; and tourism will get less than last year, while the ministries of health, the interior, enterprise, the economy, agriculture, environmental protection, transport and infrastructure, construction, regional development and EU funds, and public administration will get more. The Culture Ministry and Parliament will get the same amount as in 2015, the President's Office will get 6.1% less and the Government 4.2% more.


(EUR 1 = HRK 7.578867)

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