‘Rights of Budget Users Retained at the Expense of Taxpayers’

The declarative commitment of the Government to fiscal consolidation has, in practice, through this year’s budget, been reduced to the retention of rights of budget users that are realized at the expense of taxpayers, as assessed in the publication RBAnaliza of Raiffeisen Bank titled ‘One Step Forward, Two Steps Back’.

Analysts at RBA estimate that Croatia could achieve modest growth of 0.5 percent in 2013, after four years of GDP decline. For 2012, they expect a real GDP decline of 1.8 percent, noting that in the last four years, Croatian GDP has decreased by about 10 percent.

Analysts at Raiffeisenbank Austria (RBA) state that the 2013 budget brings higher expenditures and an expanded deficit compared to last year’s budget, in which a shift in the long-standing practice of conducting populist fiscal policy was announced. At the same time, no structural reforms have been announced that would expose part of the budget users to the risks of generating income in the market, nor plans for improving the efficiency of the public sector.

Instead of developing a plan and implementing the restructuring of public administration, RBA says that the problem of its insufficient efficiency is being addressed by increasing the prices of monopolized services, and attempts to achieve planned savings encounter ‘organized defense of the rights of budget fund users determined to maintain the status quo’.

RBA also points out that the motivation of budget users to retain rights does not diminish the issue of the long-term unsustainability of those rights in conditions of declining fiscal capacity, while it is simultaneously evident that taxpayers will not be able to achieve the same level of rights. Therefore, their tendency towards tax evasion is increasing, to which the state responds with increased repression in collecting budget revenues.

Consequently, the lack of alignment of budget expenditures with the capacity of the real sector favors the development of social conflict, which weakens the business climate and investments and, in the long term, hinders economic growth, RBA assesses.

They also remind that the plans for economic recovery last year were based on the expected growth of public sector investments. However, the absence of structural reforms resulted in an increase in final consumption and a decrease in expenditures for investments in state spending, as well as a continuation of the growth of public debt, with the expected consequence being a downgrade of the country’s credit rating.

Unlike the previous year, for the planned growth in 2013, the Government is also counting on an increase in investments in the private sector, for which the impetus should be found in high liquidity and reduced risk premiums in external capital markets. An additional boost is expected from the strengthening of business optimism after Croatia’s entry into the EU and the expected influx of capital from structural funds.

– Therefore, if the Government’s commitment to removing barriers to private entrepreneurship is not limited to a declarative level, it is possible to expect a halt to negative trends in the economy in the second half of the year, so after four years of decline, we could achieve modest growth of 0.5 percent in 2013 – conclude RBA analysts.