The projections of budget revenues for 2024 are based on the expectation of GDP growth of 2.8 percent – 0.2 percentage points above the HNB forecast and 0.3 percentage points above the latest EC forecast of 2.5 percent. In the context of a recession in the euro area in the second half of this year and in the first half of the coming year, the Croatian Employers’ Association predicts somewhat slower growth of 2.0 percent, so planning could have been more cautious. It is good that the Ministry of Finance expects the effect of inflation to pass quickly, especially in the case of weaker GDP growth, due to the cooling of domestic demand.
The average inflation rate for 2024 is almost one percentage point below our estimate and even 1.6 percentage points below the HNB’s. The forecast for nominal growth (real + inflation) seems realistic.
The growth of tax revenues is planned at a lower rate (4.2 percent) than the nominal GDP growth rate, which leaves room for some relief or slowing down the growth of the deficit next year. The planned growth of social contributions of 5.4 percent is also conservative considering the expected growth of gross wages at a high single-digit rate.
On the expenditure side, it is evident that the public sector unions have secured the convincingly largest increase through employee allowances (+32.2 percent or about 1.5 billion euros!), and allowances to citizens are also booming (+16.9 percent or 1.1 billion euros), which are mostly pensions indexed to inflation and the average wage. This is one of the convincingly largest increases in the mass of salaries in 2024 in the EU.
The expenditure growth of as much as 11.2 percent is significantly above the nominal GDP growth, and the growth of nationally financed net primary consumption of 10.3 percent is double the recommendation of the EC. Moreover, among the seven EU member states that violate the recommended growth of such defined public spending, Croatia is the furthest from the recommended percentage of growth.
