Gov't proposes changing fiscal rule

The Croatian government on Thursday proposed amending the Fiscal Responsibility Act to replace the fiscal rule on the reduction of the proportion of the budget expenditure in Gross Domestic Product by one percentage point with a new rule enabling counter-cyclical effects of fiscal policy, and this replacement is to be in force until the budget is balanced out.

The government proposed this change to encourage economic growth in circumstances of recession.

The Fiscal Responsibility Act was passed in November 2010 and was applied for the first time to the final budget in 2012, when the rule on cutting the expenditure side of the budget by one percent in reference to GDP was conducted, although there was no positive economic growth, Finance Minister Slavko Linic said at the cabinet's session.

However, during the recession without economic growth, to reduce the expenditure side of the budget by one percent in reference to GDP would mean destroying the economy itself, given that reducing outlays in the budget when there is no growth, is a drawback, Linic said.

The government said that the new fiscal rule was adjusted to the European Union regulations on fiscal ceilings and was also adopted in agreement with the International Monetary Fund.

(Hina)



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