The Housing Incentives Law Forces Investors and Invokes Lawsuits

Pacta sunt servanda’, says Arsen Bačić, a professor of constitutional law at the Faculty of Law in Split. We asked him what he thinks about the possibility that savers in housing savings banks could end up without the planned money for purchasing an apartment. His answer implies that contracts must be respected, which is a fundamental principle of contract law according to which a concluded contract has the force of law for the contracting parties.

This concerns the Draft Law on Amendments to the Law on Housing Savings and State Incentives for Housing Savings. The idea of Finance Minister Slavko Linić is to abolish incentives for housing savings for all deposits made after January 1, 2014. Although Professor Bačić does not explicitly claim that savers could sue the state because there is no classic contract, his answer suggests that there could be elements for that. However, even without that, there will be damages.

Wrong Reasons In the media, it has already been explained why Linić proposes this step, and I believe that the criticisms of this form of savings are quite justified. The housing savings system has often been abused by savers, so it can be freely said that those who withdrew the principal and interest at the end of the fifth year of savings without purchasing an apartment have defrauded the state, i.e., taxpayers. However, nothing can be done to them because it was enabled by law.
Now Linić is trying to correct the wrongs, but for completely wrong reasons. Instead of changing the legal provisions so that the money must be used for strictly designated purposes, i.e., for purchasing an apartment, otherwise there will be penalties, he sees an opportunity to save the state an additional 200 million kuna, which is paid annually in the form of incentives for housing savings. I assume that Linić’s eyes lit up when he recognized the possibility of ‘grabbing’ such money from savers in his search for every possible kuna. This move has once again shown that, regardless of the fact that our incentive policy is generally poor, the Government has no alternative policy to stimulate sectors where it would make sense. Evidence of this is the previous administrative cuts to agricultural incentives without an agricultural strategy and criteria. In the short term, the state budget benefits, but in the long term, it harms the economy because we do not stimulate sectors that have potential here.

Bad Climate If we had improved the law, we would indirectly have stimulated the construction industry through savings banks. As it stands, savers will withdraw from savings banks, especially since, unlike savings in banks, they will not have to pay penalties, and savings banks will lose their planned profits. This could also be interpreted as a violation of obligations that the state has undertaken towards savings banks, and indirectly towards savers. Therefore, savings banks could have grounds for a lawsuit here as they are losing anticipated profits from clients who have been saving for several years, which could disrupt their business plans. However, it will be difficult for savings banks to decide on this because their owner banks could worsen their already strained relations with the Government.
Damages will certainly occur because we are talking about creating an investment climate, and thus we send a message to investors that their investments can be turned to dust overnight with a stroke of a pen. Therefore, the law is being amended without deeper consideration. If this continues, we will pay the price in the coming years, and even without potential lawsuits, it could be too much. The ruling coalition could feel this in the next elections.