Croatia to reduce 2014 budget gap to 4.6%/GDP, cuts GDP growth estimate to 0.2%

By bne IntelliNews January 31, 2014

Croatia should pass a revision of this year's budget by the end of February, planning to cut the deficit to 4.6% of GDP from current 5.0% of GDP in order to meet the EC recommendations linked to its excessive deficit procedure, finance minister Slavko Linic said on Jan 30 as quoted by state broadcaster HRT.

In the revision, the government will also cut the 2014 GDP growth outlook to just 0.2% from current 1.3% due to the lower government and household spending. It also plans to further reduce the budget gap to 3.6% in 2015.

The government plans to raise this year's budget revenue by HRK 4.7bn (EUR 615mn) and reduce spending by HRK 3.6bn, Linic said when presented the measures to reduce the deficit after a Jan 30 cabinet meeting.

The fresh revenue should come from transferring funds from the second to the first pension pillar of those with early reduced retirement rights like army and police employees and fire-fighters (HRK 2.6bn), a new tax on lottery winnings (HRK 300mn), collecting the profit of the state-owned companies (HRK 1bn) and raising concession rates (HRK 200mn).

Under the plan, the profit from the state-owned companies will flow to the budget not only in 2014, but in 2015 and 2016 as well. Linic also announced introducing taxes on property, interest rates on savings and profit in 2016.

The 2014 savings in expenditure are planned to come from - lower costs for employees (HRK 370mn), lower travel and material expenses (HRK 1.3bn), lower subsidies (HRK 550mn), savings in the health sector (HRK 600mn), lower capital spending (HRK 455mn) and other savings (HRK 320mn).

The Council of the European Union opened on Jan 28 an excessive deficit procedure (EDP) for the country and set deficit targets of 4.6 % of GDP for 2014, 3.5 % of GDP for 2015 and 2.7 % of GDP for 2016, consistent with an annual improvement in the structural balance of 0.5 % of GDP in 2014, 0.9 % of GDP in 2015 and 0.7 % of GDP in 2016.

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