PM: Government decision is important for recapitalization, long-term quality business and restructuring of Petrokemija

Finance Minister Zdravko Maric said at a government session on Thursday that last year's budget revenues totalled HRK 122.7 billion, 5% more than the year before, which was owing to positive economic trends and the tax reform, while budget expenditures were lower than planned.

The growth of budget revenues was owing to an increase in GDP of 2.8%, prompted by yet another record tourist season, the growth of household consumption, exports and investments, notably private ones, which grew by more than 7% on the year, Maric said while presenting a report on the budget execution and a report on the application of fiscal rules in 2017.

The minister stressed that the good fiscal and economic indicators were owing to the tax reform and some other steps taken to improve the investment and business climate.

The growth of budget revenues in 2017 was mostly owing to an increase in tax revenues, which totalled HRK 75.2 billion.

Income tax revenues totalled HRK 2 billion, 9.7% less than in the year before, a change that was owing to lower income taxes.

Profit tax revenues were 15% higher, totalling HRK 8.2 billion.

VAT revenues amounted to HRK 47.6 billion, 5.3% more than in 2016.

Revenues from special levies and excise taxes grew 2.6% to HRK 15.1 billion.

Revenues from contributions were 23.2 billion kuna, 4.6% more than the year before.

Revenues from aid, with revenues from EU funds accounting for most of it, reached HRK 8.5 billion, an annual increase as well.

Spending under control

Budget expenditures last year totalled HRK 125 billion, an increase of 4% but less than originally planned.

"This is owing to strong fiscal discipline and responsible spending of budget money," said Maric.

He said that results were good despite several occasions when extra outlays in the amount of more than HRK 1.5 billion, for transfers to the health system, were approved.

Maric stressed that last year debt interest was cut by one billion kuna.

"Over the past two years Croatia has managed to reduce interest expenditures by two billion kuna, and one should continue working on that," he said, explaining that this was owing to the financial restructuring of the road sector's debt.

Household benefits, the most important category of expenditures, totalled HRK 45.8 billion, of which 37.7 billion went for pension allowances.

Maric stressed that the expenditure growth rate was lower than the potential GDP growth, in line with the Fiscal Accountability Act.

He said that planned budget expenditures had not been exceeded for the second consecutive year despite challenging situations.

The result is by about 2.1 billion kuna better and better results were also achieved by extra-budgetary users and local government units, said Maric.

The surplus of the consolidated general government in 2017 was 2.7 billion kuna, which is the first time a surplus was recorded since record-keeping about those statistics started, while the projection was a HRK 2.2 billion deficit, said Maric.

"The result is thus better by about five billion kuna," said Maric.

Owing to this, 2017 saw a continuation of a decrease in the share of public debt in GDP, and at the end of 2017 it totalled 78%, which is almost 6 percentage points down from the previous year.

"Regardless of the fact that public debt is still above the 60% of GDP set by the Maasticht criteria, the share of public debt in GDP has been going down almost at twice the rate prescribed by those criteria," said Maric.

60% of profit of strategic companies to be paid into state budget 

The government on Thursday also adopted a proposal on the amount, payment terms and payment deadlines regarding profits of companies of strategic and special interest to Croatia for 2017, to be paid into the state budget in 2018.

Minister Maric said that there were several companies that were exempt from this decision - Hrvatske Ceste, Hrvatske Autoceste, Hrvatska Kontrola Zracne Plovidbe, HZ Infrastruktura, Hrvatska Postanska Banka, Jadrolinija, Zracna Luka Dubrovnik, Croatia Airlines, Odasiljaci i Veze, Zracna Luka Split and Drzavne Nekretnine.

"This decision envisages the payment of 60% of the profit after taxation for 2017 by state-owned companies into the state budget in 2018," Maric said.

The only exception from this decision is the Agencija Plan company, which is to pay 100% of its post-tax profit into the state budget.

The government on Thursday adopted a decision to buy bank claims against the Kutina-based Petrokemija mineral fertiliser company in the amount of HRK 450 million, with Prime Minister Andrej Plenkovic underscoring that the decision was important for the company's coming recapitalisation and its long-term, quality business operation.

A State Secretary at the Ministry of Economy, Entrepreneurship and Crafts, Natasa Mikus Zigman, reported that Petrokemija was looking for a strategic partner that would invest HRK 450 million in cash in the company.

"However, considering the losses in the preceding periods and estimated losses in 2018, significant investments that need to be made in company plants and the lack of operating capital, and in order to secure its long-term sustainability, it is necessary to additionally reduce the company's debt, that is, increase its equity capital. The government's decision today recommends that the minister of economy buy on its behalf banks' claims from Petrokemija in the amount of HRK 450 million," Mikus Zigman said.

She explained that Petrokemija had a significant debt that as of 31 December 2017 amounted to more than HRK 800 million and that it had a negative equity in the amount of HRK 196 million.

"After the state takes on the claims against Petrokemija, they will be transformed into capital at the company's next assembly and consequently a portion of the claims transformed into equity will be used to cover losses incurred in 2017 and partially for losses incurred in 2018," she added.

Mikus Zigman recalled that in the past the government had adopted decisions under which the state guaranteed that the banks' claims would be paid, either with a direct state guarantee or by providing state-owned shares as collateral.

She underscored that once the financial restructuring was completed and the debt decreased and equity increased through recapitalisation, conditions would be created to implement the company's operational restructuring and ensure its long-term sustainability.

Petrokemija is the largest mineral fertiliser manufacturer in Croatia and the state has an ownership share of 79.85%.

The company generates a turnover of HRK 2 billion a year. Apart from accounting for one-third of Croatia's consumption of natural gas, Petrokemija has a dominant impact on the operation of Croatian ports, HZ Cargo, Plinacro, HEP and about a hundred of small suppliers of transport services, equipment maintenance, trade and services, Mikus Zigman said.

Text: Hina

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