The Unbearable Ease of Extracting Profits

The idea of any new taxes is not at all appealing to me. The first reason is personal – who would want the state to take even more money from them? The second is macroeconomic, as tax increases generally have a negative effect on employment, wages, and investments, which is the last thing we need at this moment. Just as such a simple conclusion is drawn and the topic is filed away, news emerges about our banks in foreign ownership that have decided to distribute almost all profits as dividends. This quickly brings to mind the sale of Dukat and the resale of Pliva, where billions of kuna untouched left the borders.

According to Radimir Čačić’s calculations, before the latest announcements, just through the dividend payments of banks and HT, Croatia faces a capital outflow between 6 and 8 billion kuna. HT and Ericsson Nikola Tesla already showed last year what their German and Swedish owners plan to do with the profits made in Croatia, so this year at least an equal dividend is to be expected. If we set aside cheap populist interpretations that this is meant to please Croatian citizens who hold those shares during a recession, the reasons for profit withdrawal are very clear. In a time of complete uncertainty, owners want to have their capital under control and direct it where it is more opportune, preferable, or however they see fit. And why wouldn’t they do it without any special reason when it costs them nothing?

A tax on dividends, as grotesque as it may sound to financiers, stock market players, and certain (foreign) companies, would somewhat solve this problem. In a situation where profit extraction is taxed at a sufficiently high rate, and at the same time reinvestment is stimulated, offices in Berlin, Milan, and Stockholm would think twice about pulling it out through dividends. Perhaps a nice project would suddenly appear in the companies that could be invested in. Banks, although already well-capitalized, would be even stronger and more liquid, so they would presumably be more willing to invest some of the billions they sit on into the economy. And if money were to flow abroad through dividends, at least some kuna would remain in the state budget. It’s not that this would mean much to the hopelessly empty Croatian budget, but better something than nothing.

However, the ruling party will say that this would deter investors, and that is obviously much scarier than patching up the budget a bit. They are probably right because there is no help for the budget anyway; it’s just not clear which investors they are referring to when they are already avoiding Croatia like the plague. As for the banks and telecoms that are already here, they are doing so well that there is no fear of fleeing to more favorable destinations. The flight of their capital earned in Croatia illustrates only how great the distrust is in the imminent recovery of the local economy.