HUP Calls for Higher Tax Rate for Rentiers for the First Time

Renting is detrimental to the Croatian economy as it hinders its development, demotivates residents for education, destroys the labor market, encourages emigration, causes housing problems, increases real estate prices, etc. We know this. And we also know that we love it and that our favorite ‘activity’ is to live off passive income and preferably not work.

The problem arises when 100,000 citizens engaged in renting apartments by the sea become a privileged group, paying a shameful 300 kuna flat tax annually per bed. They recoup that money before the guest even has time to change into pajamas on that bed.

For decades, neither the local community sheriffs nor ‘high’ politics have had the courage to address the taxation of private renters. Sheriffs care more about political votes than the money their communities would collect through higher taxes. The Ministry of Tourism and the Ministry of Finance do not care.

Everyone actually knows that the current situation is not good, but no one knows how to solve it.

The first topic of the new project of the Croatian Employers’ Association (HUP), Economic Coffee, was precisely renting, discussed by Hrvoje Zgombić, a tax expert, Hrvoje Stojić, chief economist of HUP, and Andrej Grubišić, consultant and co-owner of the company Grubišić and partners. On that occasion, Ireba Weber, director of HUP, publicly presented HUP’s proposal, which is to reduce labor costs and cover losses through tax reform in tourism.

Last year, HUP sent its proposals for tax reform to the Ministry of Finance, seeking to increase the non-taxable portion of personal deductions to five thousand kuna, reduce income tax from 25 to 15 percent, and raise the highest tax threshold to 50 thousand kuna. – This would cost the state budget about one billion euros annually. A third of those losses could be covered by raising the tax rate in private accommodation. In this way, local government units could compensate for part of the losses since income tax is their pure income – explained Stojić. In his opinion, the tax rate for sea apartment renters should be equalized with the property income tax, which is set at 10 percent. In this proposal, Stojić was the most specific.

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Andrej Grubišić, Hrvoje Stojić, Hrvoje Zgombić

foto Pixsell

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All three experts agreed that what rentiers currently pay is not actually a tax and that it should be equalized with everyone else engaged in some business in Croatia. Zgombić generally agrees with reducing the tax rate to open up more space for investments. The tax rate should not be someone’s motivation to engage in renting instead of production, he believes. So, it should be equal. – Given the inefficiency of the state, it is better for taxes to be lower in Croatia. If the state budget revenue were reduced by 15 billion kuna, nothing terrible would happen, but on the condition that the expenditure side is organized, which is now completely chaotic. From which no citizen benefits, except from pensions – emphasized Zgombić.

Stojić reminded of last year’s budget surplus of one percent of GDP, or 750 million euros, and emphasized that due to that ‘unexpected’ tax revenue, the state has room for further tax relief.

Both Zgombić and Stojić referred to the Laffer curve, which shows that the lower the nominal tax in a state, the higher the tax revenue.

In Croatia, there is a Satellite Account that calculates (albeit with a delay) the total impact of tourism on the economy. According to data from the “Tourism Satellite Account for 2016” prepared by the Institute for Tourism and the State Bureau of Statistics, the total contribution of tourism to the Croatian economy (the total contribution of tourism to Croatia’s gross domestic value) in 2016 was 16.9 percent. Even less to GDP. Although this is our official statistic, for some reason both politicians and economists like to publicly claim that tourism accounts for over 20 percent of GDP, which is not true.

Andrej Grubišić raised this very question at the Economic Coffee to demystify tourism in our country. – No matter how much we want it to contribute, tourism accounts for 15 to 18 percent of GDP. Thus, the majority of people in Croatia are not engaged in tourism. However, there is constant media pressure that nothing else happens in this country except tourism. And a good part of ‘Croatian’ tourism is in the hands of private owners of hotel companies. If you want to have something as a citizen from tourism, you have to invest in stocks – emphasized Grubišić. He also added that tourism has a privileged tax treatment in Croatia under the guise of national interest, which Grubišić believes is unfair to everyone else who have nothing from tourism. He warned of the dangerous practice of Croatian politics that uses power to direct movements, chooses sectors of strategic importance, without any responsibility and potential consequences if it is wrong. – An apartment in Primošten should be able to be bought by anyone. But if they engage in renting, they should have the same tax treatment as I do as a consultant – emphasized Grubišić. According to him, the tax system must be fair, simple, but also purposeful and proportional. And equal for all. At the very least, as Zgombić says, neutral so that it does not matter to someone whether to invest in an apartment or production.