In the Croatian tax system, a reform is quietly being prepared that could represent a historic shift in how the state supports families with children. This is an idea that has long been the subject of discussions among economists, demographers, and politicians, and is now closer to realization: the introduction of a universal child allowance. As Lider unofficially learns, a universal child allowance of 110 euros per child is being considered, regardless of income thresholds, which would cost the state 900 million euros annually!
Although no one has officially presented specific details yet, Minister of Demography Ivan Šipić recently hinted that such a model could replace the current tax benefits for dependent family members, and it is also known that the Ministry of Finance has been considering the possibility of removing personal deductions for children from the income tax system and replacing them with an equal cash payment, regardless of the parent’s salary.
The Biggest Change
If this model is indeed adopted, it would represent one of the largest changes in the tax treatment of families in recent decades, especially since assistance for children would no longer be a social category for the most vulnerable families, but a universal benefit for every child regardless of how much the parent earns. Such a system would be simpler, fairer, and demographically more inclusive. Moreover, this is not the only benefit; the universal child allowance eliminates complex tax calculations, relieves administration, and introduces a social measure that is easy to understand, transparent, and direct.
The current system, it is no secret, favors citizens with higher incomes more since tax benefits are only utilized by those who pay higher income tax rates. According to Finance Minister Marko Primorac, a large number of parents with low or minimal incomes cannot utilize these benefits at all because their base is too small. For them, there is the classic child allowance, but it is strictly tied to asset and income thresholds that have not significantly changed for years.
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According to available data, today about 163 thousand parents receive child allowance for about 323 thousand children, and the average amount is around 55 euros, but it can be higher or lower. Namely, the amounts of child allowance are currently determined based on the budgetary base and income threshold, which are periodically updated. Additionally, extra amounts can be awarded for the third and fourth child in the family, as well as for children without one or both parents. The new universal payment of 110 euros per child could double the number of beneficiaries.
Higher Budget Expenditures
It is estimated that around 680 thousand children under 18 would receive the universal child allowance, which would consequently increase budget expenditures. However, not significantly. If the state is already allocating 870 million euros for child allowances, an increase of about 30 million euros seems reasonable.
At the same time, the state is significantly expanding the possibilities of non-taxable expenditures; bonuses, hot meals, and occasional rewards are increasingly used in practice. Almost a third of employees in Croatia received a bonus of 300 euros in the first three months of the year, and over 400 million euros have been paid out for various types of non-taxable allowances.
Although these amounts are welcome, experts warn that they reduce the base for calculating pension contributions and thus harm future pensions in the long term. The same will apply to the universal child allowance. In any case, a working group is working on a proposal for a new model, and the first solutions could be seen as early as the next tax year. Whether everyone will like it remains to be seen, and it is worth mentioning that such a demographic measure was recently announced by U.S. President Donald Trump.
