HUP presented a reform proposal aimed at tax relief for labor

The Croatian Employers’ Association (HUP) has presented a proposal for reforming the tax system, aimed at achieving tax relief for labor. The presentation was held in front of HUP members and economic analysts, and the reform was presented by Iva Tomić, chief economist of HUP.

According to the statement, the primary goal of the reform proposal is to increase the competitiveness of the Croatian labor market. Employer representatives emphasize that Croatia is increasingly struggling to keep pace with competitive markets in the European Union, especially regarding the retention of quality workforce and attracting new talent. The main reason is the high burdens on wages, which represent a huge burden for employers and prevent significant income growth for all employees, particularly those highly qualified, which is why they are increasingly leaving for abroad or choosing remote work for foreign employers.

– The high burden of wages continues to represent a huge burden for us employers, despite the minor tax reforms that the Government has implemented in recent years – emphasized the president of the Croatian Employers’ Association and CEO of Pliva Mihael Furjan.

The CEO of HUP Damir Zorić warned that despite a 10 percent decline in the population, as shown by the last census, the absolute number of employees in the Croatian public sector has increased by 100,000.

– The Croatian Employers’ Association believes that the only path to the long-term sustainability of the Croatian economy is a significant increase in the number of employees in the private sector. To achieve this, it is essential to shift the focus of tax pressure away from labor – emphasized Zorić.

Tomić presented the reform proposal to those gathered, whose primary goal is to increase net income for all employees in Croatia, as well as to increase overall employment, primarily in the private sector. These goals, Tomić claims, are achievable through changes in the short and medium term.

Changes in the short term should be implemented as early as this year and would include tax relief for labor, specifically by increasing the non-taxable amount of personal deductions to 5,000 kuna, reducing the lower income tax rate from 20 percent to 15 percent, and maintaining the higher income tax rate of 30 percent, but increasing the amount to which this rate applies from 30,000 to 50,000 kuna.

– This would maintain progressivity in the system while also allowing relief for highly qualified workers ‘in the middle’ who are necessary for improving the overall economic picture – explained Tomić.

However, she emphasized that interventions in the tax system can only have a limited effect, given that more than 30 percent of the total labor cost at almost all wage levels consists of contributions. HUP believes that changes to the contribution system are necessary in the short term, specifically by reducing the contribution rate for the first pension pillar to 13 percent and reducing the health insurance rate to 15 percent.

– It is realistic to expect that the proposed changes will lead to an increase in employment and the number of insured individuals, as well as stimulate consumption and VAT revenues, on which the state budget heavily relies – added Tomić.