Croatia Enters EDP, Deficit of 17 Billion Kuna

Croatia, there is no doubt, is entering the Excessive Deficit Procedure (Lider writes about the entire procedure in this week’s issue) – by the end of September, we will submit data on the budget deficit and the general government debt to Eurostat, but given that the deficit will amount to around 17 billion kuna (seven more than planned) we almost automatically fall under EDP.

The European Commission will not ask us nor will it write down in black and white which specific items we must cut (the Ministry of Finance emphasizes that cutting expenditures is not the only way to reduce the deficit, and something can still be extracted from revenues) but will determine how much the ‘fiscal effort’ must be and within what timeframe we must execute it.

Despite the deficit, the situation in the state treasury is completely orderly and all obligations to budget users are settled on time, it is learned from the Ministry of Finance.
The Ministry has not used intra-month bank loans for the fourth consecutive month, and next week there will be no auction of treasury bills (400 million kuna is due, which will be returned from regular operations, not new debt), the Ministry reports.

According to preliminary data from the Ministry of Finance, the total deficit in the state budget at the end of August this year amounted to 13 billion kuna or 2.8 billion more than planned. On the other hand, revenues reached 70 billion kuna, which is, despite fiscalization, 3.5 percent less than in the same period last year. Total expenditures (83 billion) are four percent higher, total tax revenues (40.5 billion) are 4.8 percent lower than last year, with the most significant shortfall coming from corporate income tax revenues (the shortfall is a result of companies opting to reinvest profits, as profits are then tax-exempt).

VAT revenues have also fallen – in the first eight months they decreased by 1.3 percent, to 26.4 billion kuna, primarily due to the absence of VAT revenues from imports (this impact is now slowly easing, as imported goods are sold on the Croatian market and the VAT from that sale enters the budget).

Fiscalization has clearly not ‘improved’ the budget much despite the excellent results, at least that is what we learn from the Ministry – only in July, hospitality providers reported 65 percent more turnover than last year, while retailers reported around 38 percent. In the first six months, retailers and hospitality providers reported seven billion kuna more taxable deliveries compared to the same time last year, while the total difference across all sectors amounts to as much as 13 billion kuna.