Linić: Due to a budget deficit of 13.3 billion kuna, a rebalancing is necessary

The deficit in the Croatian state budget amounted to nearly 13.3 billion kuna at the end of September this year and is not expected to increase by the end of this year, stated Finance Minister Slavko Linić at a press conference today, who also announced an imminent rebalancing of this year’s budget.

Speaking about the state of public finances, Linić reminded that the state has ‘spent’ around 7 to 8 billion kuna over the past two years through various exemptions and incentives for the economy, and the effects of this have been absent.

There is discussion about the problem of public investments, why there are delays in investments in Plomin, Dubrovnik, alternative energy sources, but not about why the economy is not recovering after receiving enormous incentives. The state has restructured railways, air traffic, the road sector, and healthcare, but why has the private sector not restructured and why should the government provide an answer as to why there is no economic growth after so many incentives – the government wants to know this, and the answers should come from the private sector, Linić emphasized, adding that this money has been spent by the private sector on failed investments and real estate business.

Presenting the budget performance for the period up to the end of September this year, Linić reminded that the deficit was planned at around 10 billion kuna, which it would have been if there had not been a one-time cost of 3.3 billion kuna for healthcare remediation.

The revenues of the state budget for the first nine months of this year amount to 79.6 billion kuna, which is 2 percent lower than in the same period last year, while expenditures have simultaneously increased by 3.5 percent, to 92.9 billion kuna.

Tax revenues by the end of September this year amounted to 46.3 billion kuna and are about 2.5 percent or 1.2 billion kuna lower than last year. In this shortfall, Linić stated, as much as 1.5 billion kuna is due to lower corporate income tax revenues, which the government consciously relinquished as part of support for the economy to preserve existing or create new jobs and new investments.

VAT revenues, which were reduced by about 1.7 billion kuna due to Croatia’s EU membership, are higher than last year by about 80 million kuna, amounting to 29.8 billion kuna, “so nothing significant is happening and sufficient collection is being achieved,” Linić said.

From income tax, by the end of September, 951.3 million kuna was collected, and the Finance Minister interprets the data on paid health and pension contributions as a result of higher discipline in collection despite lower employment – contributions for health insurance, which have been reduced by 2 percentage points this year, were paid 6.3 percent less than in the nine months of last year, amounting to 11.8 billion kuna, while for pensions and employment, there was an increase of 0.1 percent, i.e., 14.4 billion and 1.4 billion kuna.

On the expenditure side, the largest differences compared to the plan relate to 3.3 billion kuna spent on healthcare remediation, certain overruns for salaries in education and police, and about 300 million kuna in higher pension costs due to their adjustment.

Due to these differences, another rebalancing will be necessary this year, which will be carried out through internal reallocations, he said.

Linić also announced that a proposal for next year’s budget will be presented in 15 to 20 days and reminded of the expected increase in the deficit, especially due to 4.7 billion kuna in higher costs related to EU membership, but also due to high expenditures for financing previous budget deficits and refinancing other old debts.

With the budget proposal, the needs for new borrowings in 2014 will also be known, Linić said, emphasizing that there will be no foreign borrowings in 2013, and that all needs will be met in the domestic market.

Additionally, it will also be known then the planned revenues from privatization and from the monetization of highways, which should reduce the state debt, and regarding investor interest in the first two major privatization tenders, for Hrvatska poštanska banka and Croatia osiguranje, there should be discussions at this week’s government session.

The Finance Minister also explained the reasons for abandoning the payment of state incentives to housing savers, stating that while any savings are welcome, the Ministry believes that housing savings should not be encouraged as no new apartments are being built, the existing ones are not being sold, we currently have about 30 percent more apartments than families, and also because citizens are over-indebted for housing.