Gov't to reduce budget deficit with higher intermediate VAT rate

With the aim of fiscal consolidation, the government on Thursday presented a package of 37 reform measures that should reduce the budget deficit by HRK 2 billion and one of these measures includes an increased intermediate Value Added Tax (PDV) rate from 10% to 13% as well as higher excise taxes on tobacco products and fuel, outsourcing facilities in the public and state sectors, doing away with tax reliefs for first home buyers, and reducing special pensions.
 

Legislative changes required for the implementation of these measures will be enacted along with the proposed 2014 budget in early November.

The government expects that the measures will reduce the budget deficit by HRK 2 billion or around 0.6% of Gross Domestic Product and by HRK 4 billion or 1.2% of GDP in 2015 and a further 1.7% of GDP in 2016. The budget deficit in 2016 is foreseen to fall to 2.4% of GDP, Welfare Minister Milanka Opacic, EU Funds Minister Branko Grcic and Finance Minister Slavko Linic said on Thursday while presenting the reforms.

The budget deficit for next year, as projected today with the adoption of the government's Guidelines, would be cut from HRK 17.4 billion to HRK 15.4 billion, or from 5% of GDP to 4.4%.

The government plans to increase the intermediate VAT of 10% on sugar, oil, water and tourism to 13%, which should bring in an additional HRK 600 million to the budget in 2014.

Minister Linic said that the government was still discussing whether to raise the lowest VAT rate applicable to tourism from the current 5% to 8% which would strengthen competitiveness in that sector as the VAT rate in neighbouring countries ranged from 8% to 12%.

Linic further announced that taxes on real estate would be reduced from 5% to 4% and that reliefs for first home buyers would be abolished.

Other measures include reforms in the pension system, which means that pensions higher than HRK 5,000 would be reduced by 10% with the exception of 100% disability pensions for Homeland War veterans and for children of defenders killed in the war, and indexation in future would only apply to the lowest pensions, those of workers.

Significant savings are foreseen in outsourcing support facilities in the public service and state administration sectors such as cleaning, catering, washing and accounting services.

Significant savings are also planned in the health sector, particularly on medical recipes, which foresees a saving of HRK 600 million and other costs should contract too after a masterplan for hospitals is adopted, Minister Opacic said.

Minister Grcic announced that state administration would be reorganised into five regions but this still needs to be put to a public debate and defined, he said.

Other measures to up revenues to the state budget are planned with the sale of the HPB postal bank and the Croatia Osiguranje insurance company, which has been put in motion, as well as 11 tourism companies that are to be privatised.

The government remains steadfast with its decision to lease out motorways, Grcic said, which should bring in HRK 22.5 billion as a one-off payment and lead to an expected saving of HRK 750 million to one billion kuna in the years to come, he said.

(Hina)
 

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