The new government started to implement savings measures, but it faces resistance.
By Drazen Remikovic for Southeast European Times in Zagreb -- 18/01/12
Croatian mobile users may face a tax on SMS and MMS messages. [Reuters]
Leading a country with a deficit of nearly 3 billion euros and a debt of 47 billion euros, Prime Minister Zoran Milanovic has launched measures to slash spending and boost revenues. As the country looks towards EU accession in 18 months, it is clinging to a credit rating just one level above speculative.
Central Bank Governor Zeljko Rohatinski has said that Croatia faces a "very, very tough year ahead", and recommended that 1.2 billion euros must be cut from the budget.
The new government, which took office last month, proposed reintroducing a 6% tax on mobile phone services, which the previous administration scrapped last October.
"We assess it will bring [40m euros] annually to the budget," the government said last week. The tax, which is expected to be adopted this week, would be in effect until June 2013.
The new plan also reinstates the tax on SMS and MMS messages, which was abolished two years ago. "It's an income of 8m euros annually. It may not be much money for the state, but it would be enough to save 20,000 jobs in the textile industry," Deputy Prime Minister Radimir Cacic told SETimes.
In response, mobile operators have threatened layoffs, reduced investment and appealed to the Constitutional Court.
"We are shocked that the government decided to revive the EU criticised anti-business moves of the previous [administration] as one of its first actions," VIP Net, one of three mobile operators in Croatia, said in a statement.
Other measures -- concerning the rules of public spending for civil servants in ministries and state administrations -- will reduce the use of state employee's cars, mobile phones, business cards, airlines and business trips.
The number of officials in state institutions -- deputy ministers, state secretaries, ministers' assistants -- will be reduced by one third.
This alone should add 130m euros to the state's coffers.
The government has also announced a VAT increase, as well as the possible introduction of property tax to increase economic growth.
Banks have come out in support of the measures, saying they will back the government to help the state economy recover.
"We expect a year where we will make additional joint efforts in dialogue with the government to restructure and start encouraging the growth of the economy," Croatian Banking Association (HUB) spokesperson Ivana Prgomet told SETimes.
However, Faculty of Economics professor and Zagreb Institute of Economics member Zeljko Lovrincevic told SETimes that these measures are only small steps forward.
"Expenditures [for] pensions, wages and other income is very difficult to reduce. It takes a lot more than the abolition of officials' telephones to fill the state budget," Lovrincevic said.
The Croatian Employers' Association warned that the new taxes will have a negative effect on the economy.
"It's extremely important to us to reduce the amount of total taxes and to reduce the cost of state administration. Therefore we welcome any reform in this direction, because it's the only way we can run the economy," Association Director Davor Majetic told SETimes.
Either way, consumers think that the savings measures are going too far.
"Manufacturers and traders listen to all announcements of possible tax changes and therefore, increase their prices. I bet that there is not a single worker in Croatia who does not think that he will live worse this year than the last. They negotiate on prices and taxes, and we all know who will pay all that," Goran Masonicic, a 34-year-old retail employee from Zagreb, told SETimes.
The government has promised that it will "not touch" the incomes of the most vulnerable categories of the population -- pensioners and welfare recipients -- and that the tax on basic foodstuffs will remain zero. For now.