Government ministers from the Social Democratic Party (SDP) Branko Grcic and Boris Lalovac on Wednesday described as irresponsible claims by the opposition Croatian Democratic Union (HDZ) that if it came to power, it would reduce the current VAT rate, saying that such a move would cause a huge gap in public finances and a drop in pension allowances of HRK 230 in the next two years and of as much as 30% after that.
"In its economic platform the HDZ announces a reduction of the VAT rate from 25% to 23%, to be followed by a further reduction to 20%, which is very irresponsible. It will cause huge losses in public finances and most importantly, major cuts that won't benefit anyone," Lalovac said at a news conference in the SDP offices.
He said that the incumbent government's policy was supported by an opinion from the European Commission, which has recommended that its member states should reduce the tax burden on labour rather than on consumption.
"If it comes to power, the HDZ will pursue a policy of painful cuts, which will be felt the most by pensioners. Cumulatively, a reduction of VAT (as proposed by the HDZ) would, over a period of four years, result in a budget deficit of some 23 billion kuna. To compensate for it, they would probably have to make painful cuts, such as cutting pensions by up to HRK 230 in the first two years, and if the VAT rate were to be further reduced, pensions would be reduced by about 30%," Lalovac said.
He said that the outgoing government had reduced income taxes, which had resulted in increased personal consumption. As early as 2016 the SDP plans to increase the non-taxable income to around HRK 3,000 and raise the limit for the highest income tax rate of 40%, he said.
Such unburdening would cost 800-900 million kuna, he said, confident that that would not financially threaten local self-government units which after the last reduction of the income tax had improved the collection of municipal fees and management of income from property taxes. Most of those units now have higher incomes than before, he said.
Grcic said that the HDZ's plan for VAT reduction would in the first two years also result in a cut in salaries in public and government services of more than HRK 900, and that in the following two years the cut would be double that amount.
"The policy we have been pursuing for the last four years and some of the decisions that we have made in the last two years clearly show that we are on the right track, as suggested and supported by the EC," said Grcic.
In its report, the EC has also said that Croatia has a high consumption tax and that in terms of taxing property it is among the countries at the bottom of the ranking.
Grcic said that the property tax would not be introduced for now. It takes time to introduce it since one of the conditions are well-organised land books, he said. "It may happen one day but it won't happen soon."
He also quoted media calculations that show that the HDZ's election promises amount to HRK 33 billion and the SDP's four billion.
"I urge citizens to think about who has been pursuing a realistic policy and is offering such a policy for a second term in office and who has been immoderate in their promises," he said.