Prime Minister Andrej Plenković announced on Thursday that an additional tax relief of 2.3 billion kuna is planned for next year, noting that the Government has not abandoned the reduction of the general VAT rate by one percentage point but is considering implementing it from January 1, 2020, instead of next year.
Recalling that the tax relief in the first two rounds of tax reform amounted to around 4 billion kuna, Plenković stated at a press conference after the Government session that the new package of tax changes at the beginning of next year would enable an additional relief of 2.3 billion kuna.
“All of this should enable additional personal consumption, employment, and investments, and thus also revenues for the state budget, ultimately leading to economic growth,” Plenković stated.
He also mentioned that a large part of the funds allocated by previous laws was given as revenue to local and regional self-government units and believes that the effects of this are already visible in their activities, projects, and plans, and that this trend will continue.
“We want to bring Croatia to a situation where we reach an investment rating level,” Plenković said, reminding that all three leading global rating agencies have already upgraded Croatia’s investment rating or improved its outlook.
Reflecting on changes in the VAT system, Plenković stated that the HDZ’s electoral program announced a reduction of the general VAT rate from 25 to 24 percent.
As he said, in the past few months, experts in the working group of the Ministry of Finance have analyzed what the effect of reducing the VAT rate would be more concrete, useful, and profitable – whether to reduce the general VAT rate by 1 percentage point or to reduce the rate from 25 percent to 13 percent for certain products.
By analyzing the costs that Croatian families incur for a food and utility basket, it was calculated that it would be much more beneficial for citizens with lower incomes to apply a lower VAT rate on food items such as fresh meat, fish, fruits, vegetables, and diapers, Plenković stated, placing the reduction of the VAT rate on diapers in the context of measures for demographic renewal.
“In this way, at this stage, with the rate of 13 percent on fresh meat and fish, fruits, vegetables, and diapers, we would achieve a better and more concrete effect for the widest number of our citizens. However, this does not mean that we would abandon the reduction of the general VAT rate,” he emphasized. At this moment, he said, the Government is considering postponing the reduction of the general VAT rate, which was planned for January 1, 2019, to January 1, 2020.
“Thus, with a rational, reasonable approach, we strive to achieve an optimal solution that shows social sensitivity and which I believe will be well received,” concluded Plenković.
Reflecting on the guidelines for economic and fiscal policy for the next three years, which the Government adopted on Thursday, Plenković emphasized that the key message is that the Government continues with a very clear, firm fiscal consolidation.
“We showed last year that we are capable of responsibly managing public finances and conducting public finances in a way that we achieved a surplus in the general government. We want to continue that trend; that is our ambition, and I believe that permanent fiscal consolidation and the reduction of public debt allow us to meet the criteria related to the Maastricht criteria package at that pace,” Plenković stated, adding that it is a realistic assumption that Croatia will achieve the goal of entering the eurozone by the end of the next Government’s term.
According to the guidelines accepted today, the Government maintains its projections for economic growth this year at 2.8 percent, while growth could slow to 2.7 percent in 2019, and to 2.5 percent in the next two years.
Taking into account economic growth, as well as the upcoming tax relief, total revenues of the state budget for 2019 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.
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.
