HUP: Tax Relief is a Step in the Right Direction

The Croatian Employers’ Association (HUP) emphasized on Wednesday that any tax relief is a step in the right direction, highlighting the importance of ensuring tax relief for the incomes of highly qualified professionals, and pointing out the significant yet unused fiscal capacity that exists in the tax treatment of tourist rentals.

The government presented a new round of tax reform on Wednesday, which abolishes the surtax for local government units, raises the personal deduction to 560 euros, and the state will cover part of the cost of pension contributions for citizens with low wages. Prime Minister Andrej Plenković stated that the primary goal of the reform is to increase wages and that nine laws will be amended or supplemented in this new round of reform.

The government aims, the Prime Minister said, to raise the standard of living and wages, especially for citizens with the lowest wages, increase household purchasing power, reduce inequalities, preserve economic growth, and strengthen the fiscal autonomy of local government units.

– Any tax relief is a step in the right direction – said HUP, noting that they expect local government units to join this first step with their own measures.

The government’s proposal will result in wage increases for employees with the lowest incomes, which HUP welcomes. They also state that the changes presented today in the income tax system have created preconditions for stronger wage relief.

HUP reminds that employers have significantly increased wages in response to inflation and circumstances in the past year, resulting in a revenue growth for local government units of over 23 percent. As they point out, employers significantly raised wages last year, by more than 20 percent.

– The increase in wages in the private sector continues and accelerates this year, already by more than 10 percent, which will result in additional revenue growth for local government units from income tax – emphasized HUP.

Therefore, they are convinced that there is fiscal space for local government units for further wage relief through the application of lower tax rates than the existing ones.

Completely Unused Fiscal Capacity in Taxing Tourist Rentals

Employers remind that “there is a large fiscal capacity in the tax treatment of tourist rentals, which is completely unused.”

HUP therefore calls on local government units to utilize their fiscal space for further wage relief, increase efficiency, and create a better investment and business environment.

They state that a one percentage point reduction in income tax potentially raises the GDP growth rate by 2 percent, which again means new revenues for the local state, new jobs, and further wage increases.

Employers believe that it is equally important to seize the opportunity for income relief for highly qualified labor and to promote its employment and retention in the Croatian market.

– By lowering the higher tax rate to 25 percent, the possibility of significant wage relief for this group of employees has been opened, and they are key to creating greater added value – emphasized HUP, suggesting that the proposal to limit contributions to four average salaries be considered.

HUP sees a positive step in today’s presented tax reform proposal in the changes in the tax treatment of tips. This is, they say, particularly important in the tourism and hospitality sectors and service activities.

They also note that a more favorable tax treatment for stock option grants will positively reflect on the IT sector and startup community and all entrepreneurs who want to reward their employees with company ownership shares. Such a reward model, employers believe, is a strong motivation for employees and a powerful lever for retaining the most qualified professionals in Croatia.

HUP has stated that they will continue to insist on further labor relief and will constructively propose their suggestions to the government to jointly ensure further preconditions for increasing competitiveness and economic growth.

The President of the Croatian Chamber of Commerce, Luka Burilović, also supported ‘any’ tax relief for citizens and entrepreneurs.

– Although the sixth round of tax reform does not reduce the gross II amount of wages, except in the part of pension contributions for the lowest wages, the direct effect of the reform will be an increase in net wages, which will further stimulate personal consumption as one of the drivers of GDP. I believe that the announced abolition of the surtax significantly represents an administrative simplification of the payroll calculation process since all income from income tax has been local and regional unit revenues for years, so it makes sense to simplify their calculation. Also, the new round of tax reform comes at a time when the state and local government units are achieving a surplus, so it is a good time for further decentralization and fiscal autonomy – said Burilović.