The revenues of the state budget in 2019 are planned at the level of 134.2 billion kuna, while expenditures would amount to around 139 billion kuna, as stated in the Guidelines for Economic and Fiscal Policy for the period from 2019 to 2021, which was presented at the Government session on Thursday by Finance Minister Zdravko Marić.
According to Minister Marić, this document largely continues the convergence program and the national reform program adopted at the end of April.
“This is a document that provides the macroeconomic framework for the projection period of the next three years and emphasizes three key determinants – the macro framework in terms of projections of economic growth of the main aggregates, labor market, prices, tax components of GDP, then the revenue side of the budget and the limits of state budget spending,” said Marić.
He emphasized that the Government remains committed to the projections of economic growth this year of 2.8 percent, while in 2019 growth could slow to 2.7 percent, and in the next two years to 2.5 percent.
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Taking into account economic growth, as well as the upcoming tax relief, in 2019 the total revenues of the state budget are projected at 134.2 billion kuna. The Guidelines also state that in 2020 total budget revenues will increase by 3.6 percent, to 139 billion kuna, while for 2021 total revenues are projected at 141.1 billion kuna, which is an increase of 1.5 percent.
These movements, it is stated, are determined by the expected growth of economic activity, but also by the fiscal effect of further tax relief.
“We have included the continuation of tax and administrative relief in the revenue side of the budget,” said Marić. He added that more will be heard today about tax changes, followed by a preliminary assessment of the impact, then public consultation, and at the actual Government session, this package of tax changes will be during September.
The Guidelines state that “the most significant changes relate to changes in the value-added tax system and labor taxation. Namely, from January 1, 2019, with the aim of reducing the regressive effect of VAT on the most vulnerable group of citizens, the VAT rate is reduced from 25 to 13 percent for fresh meat and fish as well as fruits and vegetables, thus opening up space for lowering the prices of these products, which should contribute to increasing the disposable income of the population.”
In the contribution system, it is proposed to abolish the contribution for mandatory unemployment insurance of 1.7 percent and the contribution for occupational health protection of 0.5 percent, while simultaneously increasing the contribution for health insurance to 16.5 percent.
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“This reduces the total contribution of entrepreneurs to salaries by 0.7 percentage points, which opens up space for salary increases. In the income tax system, which is entirely the revenue of local and regional self-government units, the most significant change relates to the expansion of the bracket for applying the rate of 24 percent. A further reduction of the real estate transfer tax rate from 4 to 3 percent is also proposed,” states the Guidelines.
As for budget expenditures, in 2019 total expenditures of the state budget are projected at 139.1 billion kuna. In 2020, total expenditures are planned at the level of 140.6 billion kuna and have increased by 1.5 billion kuna compared to 2019, while in 2021 total expenditures are planned at the level of 141 billion kuna.
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The largest increase in the expenditure side of the budget for the next year, compared to the current plan for this year, is expected in pension and retirement benefits expenditures, amounting to 1.3 billion kuna.
A significant increase in expenditures compared to this year is expected for child allowances, as recent changes in legislation have enabled approximately 150,000 more children to qualify for the allowance. Thus, in the next year, a total of 337 million kuna will be allocated for child allowances, said Marić.
For total demographic renewal measures – child allowances, additional maternity benefits, newborn equipment, and subsidizing housing loans – expenditures will increase compared to this year by 270 million kuna.
Interest related to the refinancing of debts in the road sector will contribute to an increase in expenditures in the budget for the next year by almost 320 million kuna, the contribution of the Republic of Croatia to the EU budget by 354 million kuna, and the implementation of curricular reform and other areas in science and education by 200 million kuna, concluded Marić.
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The Guidelines state that, thanks to the continuation of fiscal consolidation, the share of public debt in GDP should fall to 71.5 percent in 2019, from this year’s projected 74.5 percent. Then it should fall to 68.5 percent in 2020 and to 65.4 percent in 2021.
The general government budget, after last year’s surplus of 0.8 percent and this year’s projected deficit of 0.5 percent of GDP, is expected to be in deficit of 0.4 percent next year, balanced in 2020, and again in surplus of 0.5 percent of GDP in 2021.
The movement of the inflation rate, after this year’s projected 1.7 percent, is expected to amount to 1.6 percent in 2019 and 2020, and in 2020 to 1.7 percent.
