Introduction of Euro in Question?

By 24 July 2018

Finance minister plans major tax cuts, while the rescue of the Uljanik shipyard and Petrokemija could cost more than six billion kuna.

Finance Minister Zdravko Marić plans to introduce between 2 and 2.5 billion kuna of tax cuts starting from January, while the possible government rescue of two major companies could cost up to three times as much, reports Večernji List on July 24, 2018.

In the wake of the declining public debt, the government has announced its intention to introduce the euro, but billions of unplanned debts by Uljanik and Petrokemija are threatening to endanger the fiscal consolidation and, indirectly, negotiations on the entry into the eurozone. Although the share of public debt in GDP dropped to 76.2 percent in the first quarter of 2018, the trend could easily be reversed.

The debts of the Uljanik shipyard from Pula are estimated at about three billion kuna in the first phase, with additional two to three billion kuna for newly-contracted ships. The budget could also be forced to pay the debts of Petrokemija, which amount to about 1.3 billion kuna.

When everything is said and done, Finance Minister Zdravko Marić plans to reduce tax revenues by about 2 to 2.5 billion kuna starting from 2019, and the financial impact of the two companies surpasses that amount by up to three times. The final impact is difficult to estimate because the volume of debt that is being transferred to taxpayers is not yet fully known, as well as when the debts will officially become a part of the public debt.

On the other hand, the current decline in the debt is not irreversible. It is a result of GDP growth, higher budget revenues, loan refinancing and changes in exchange rates, rather than reduced spending. And the debt has not been reduced in absolute terms. Since entering the European Union, the general government debt has increased by 45 billion to 281 billion kuna. That is about 11 billion kuna less than in 2017, but still at the 2016 levels.

Given the possibility that the economic growth could slow down and the exchange rates worsen, and with the government exposure to Uljanik and Petrokemija, it will be a success if the share of debt in GDP does not rise again.

Translated from Večernji List (reported by Ana Blašković).