Primorac: The Special Profit Tax Aims to Prevent the Channeling of Subsidies into Profit

Finance Minister Marko Primorac emphasized at the Jutarnji List conference that the announced special profit tax aims to prevent companies from channeling state subsidies into profit, while the Director General of HUP, Irena Weber, assessed that any arbitrary decision-making regarding the taxpayers of this tax is ‘very slippery ground’.

According to the minister, after a significant decline in 2020, the Croatian economy last year achieved significant growth, which, according to the latest revised data, amounted to 13.1 percent.

This growth was primarily contributed by Croatian entrepreneurs, who demonstrated strength and resilience, followed by the Croatian population, but the government also contributed with its measures, he noted.

– The government will also be focused on fiscal consolidation, maintaining the stability of public finances, and reducing the share of public debt in GDP in the upcoming period, taking care of citizens and entrepreneurs – Primorac stated.

Due to significant inflation, he pointed out that the current crisis is somewhat different from previous ones, and thus an increase in state spending would further intensify inflationary pressures. Therefore, caution is particularly necessary, and instead of broad support programs, assistance must be directed to those who need it most, said Primorac.

He also stated that in a situation where the market is not efficient in the distribution of goods and services, state intervention is justified and necessary, and thus the government intervened this year with two packages of measures, totaling around 26 billion kuna.

Primorac also conveyed that entrepreneurs must be aware of the government’s interventionism in terms of fixing and limiting electricity and fuel prices, as well as reducing VAT rates.

– Then you cannot say: but let us freely set the prices of all our products – Primorac stated.

In the context of the listed government measures, aimed at keeping product prices as low as possible, Primorac also referred to the announced special profit tax.

– Someone channels those subsidies towards their profits, and then the government must react again, not to punish someone or to determine a certain limit up to which it believes someone can make a profit, but to help end consumers again and redistribute profit – Primorac stated.

Despite forecasts of slowing economic growth, which will amount to 0.7 percent next year, Primorac highlighted quite good implementation of the National Recovery and Resilience Plan (NPOO) as reasons for optimism and for encouraging additional economic growth, which also involves implementing significant reforms, as well as entering the eurozone.

Weber: The Tax on Excess Profit is ‘Very Slippery Ground’

When it comes to the announced tax on excess profit, the exact details of which are still unknown, the Director General of the Croatian Employers’ Association (HUP) Irena Weber stated that any arbitrary decision-making regarding potential taxpayers of this tax is ‘very slippery ground’, and that it introduces additional uncertainty and disorder into the economy.

As Weber explained, Croatian companies need strong profit margins to invest in their development. Compared to companies from the EU, Croatian companies have about 50 percent lower profit margins, which means they are generally less efficient and less profitable. In addition to investing in research and development and marketing and product placement, Weber noted that Croatian companies also face investments in green transition and digitalization.

Furthermore, the question arises on what basis and in what manner it will be decided what constitutes excess profit. For example, a company may have increased its profit because it invested in research and development and modernization of production for several years, or it may have launched a new product on the market.

– Is that excess profit? Of course not – Weber asserted.

Tedeschi: The State Needs to Tell Citizens to Save

At the panel discussion ‘How to Respond to Unprecedented Challenges?’ that followed, the CEO of Atlantic Group Emil Tedeschi questioned the stance of government representatives through the fact that Finance Minister Primorac and State Secretary of the Ministry of Economy and Sustainable Development Ivo Milatić left the conference after their speeches, apologizing for further obligations.

– They declared what they had to say, and they are not interested in what we are discussing or think they have more important work – Tedeschi stated.

Tedeschi assessed that the current crisis is ‘the crisis of all crises’. He believes that there is not much to criticize about the government’s measures, but that the state needs to tell citizens that they must save and that a time is coming when it will be harder than in previous years.

– The previous business and life model cannot be repeated – Tedeschi stated.

The need for saving was also agreed upon by the CEO of Vindija Nenad Klepač, who highlighted the danger of the current inflation, which is approaching 13, 14, and even 15 percent, and additionally, 2023 brings new uncertainties.

Vindija primarily feels inflation through rising raw material prices, for example, grains, which have increased by about 80 percent on an annual basis. Consequently, there has also been an increase in livestock production prices, such as milk, for which the company has adjusted the purchase price eight times this year, Klepač noted.

On the other hand, he emphasized the importance of quality labor, stating that Vindija has raised salaries for its employees three times in the past year.

Vujnovac: Europe Will Substitute Russian Gas

The owner and CEO of PPD and Energia naturalis group Pavao Vujnovac stated that Europe can and will certainly substitute Russian gas, but the question is how much it will cost, in terms of the final price of gas from other sources, primarily LNG, and considering that it must invest a lot of money in infrastructure.

State Secretary Ivo Milatić stated that the relevant ministry is constantly working to ensure that the Croatian economy does not experience price shocks and that the industry has predictable costs, which is why the government has adopted comprehensive measures.

He emphasized the importance of the LNG terminal on Krk for the security of gas supply, and noted the filling of the underground gas storage facility Okoli as extremely important for the Croatian industry.