Croatia - 'anti-crisis tax' to restock treasury funds

In order to curtail the exploding deficit the Croatian Government has revised its budget already three times this year. The new government of Jadranka Kosor – successor of former Prime Minster Ivo Sanader – has already introduced deep cuts: On August 1st several taxes have been increased and new taxes have been introduced. The value-added tax has been raised to 23 per cent. It shall provide an additional revenue of about HRK 1,5 billion till the end of the year.

The Croatian Institute for Public Finances criticizes that Sander’s government planned its budget in a far too optimistic way – despite the worldwide financial and economic crisis which was already foreseeable in autumn 2008. At the end of 2008 the calculated deficit of the budget was estimated to amount to HRK 2,4 billion, although it was foreseeable that this year some HRK 11 billion of public debts would mature. At the moment treasury funds lack HRK 9,3 billion.

Kosor´s government has now introduced the highly criticized ´anti-crisis tax` which will be charged till the end of 2010. It is 2 per cent for incomes of more than HRK 3.000,-and 4 per cent for incomes of HRK 6.000, - and more. The government expects additional revenues of HRK 755 million for the current year and HRK 2,1 billion for 2010. After severe criticism President Stipe Mesic announced that the new tax would be checked for constitutionality. Also dividends –exempted from tax in 2005 – are subject to the anti-crisis tax. A further source of revenues has been created, too. In future all mobile telephony operators have to pay 6 per cent of their gains from telephone traffic, SMS and MMS to the state.

Despite the tight situation of the budget the head of Croatia’s Central Bank, Mr Rohatinski, is much against borrowing from the International Monetary Fund. He says that Croatia must take over responsibility and must take the necessary measures. But at the same time he warns that the decline of the GDP (1st quarter: -6,7 per cent) and the resulting budgetary deficit might be much higher than estimated so far. According to his estimates financing prior debts and the calculated budgetary deficit would mean additional debts of about HRK 42 billion.