No Major Reforms Evident in 2018 Budget

By 3 November 2017

Another year will pass without any significant reforms.

On Thursday, the government presented the state budget for the next year, based on the GDP growth projection of 2.9 percent and the general government deficit of 0.5 percent of GDP. Total revenues are projected in the amount of 129 billion kuna, or 6.1 percent more than in the current budget, and overall expenditures will amount to 133.3 billion kuna, which is five billion kunas more than in the current budget, reports net.hr on November 3, 2017.

Economic analyst Damir Novotny said “there is nothing new” in the next year’s budget. “Favourable trends in public finances will continue. Budget revenues are fairly good, thanks to GDP growth and great tourism season. However, I do not see what government's intentions are on the spending side because there are no important changes,” said Novotny.

In his view, the most significant problem is debts in the healthcare system. “This bomb will explode sooner or later because it is still unclear how these enormous debts can be resolved. A billion kunas more for the health sector, which were secured in this year’s budget review, will not be enough because healthcare system debts are about eight billion kuna. That is unsustainable and one of the biggest problems in public finances,” said Novotny.

Labor and Pension System Minister Marko Pavić announced salary increases for state and public sector employees. Asked whether there was enough money for this growth, Novotny said, “there is enough money because budget revenues are high, but the question is whether the expense is justified.”

“Not all expenditures which are now growing should continue to grow. On the contrary, the government should now take measures to stop the public expenditure growth trend and create a primary surplus, that is, to implement necessary reforms to maximise the overall efficiency of the public sector,” Novotny concluded.

Krešimir Sever, president of the Independent Trade Unions of Croatia, commented on the salary increase for state and public sector employees. More than a third of members of his union are employed by such services. “It is difficult to say whether there is money for this increase. The government talks about large numbers, and these are huge amounts in absolute terms. But, when it comes to each person, it is clear that salaries are low, both in state and public services, particularly for the responsibilities these people have. And they are low in absolute terms because people can hardly survive with them. Many of these people do not even reach the average Croatian wage,” said Sever.

As for the budget projection for the next year, Sever said it was the result of upward economic trends. “But, I would say – it may sound strange – that this is not a fast enough growth for Croatia. Although the 2.9 percent growth is not nothing, we will not reach the levels we had before the crisis for a long time. It is 2017, and we have not yet reached the 2008 level. This means we have to prepare much more ambitious plans and more ambitious solutions that will create prerequisites for higher growth,” said Sever, adding that one of the fundamental preconditions for the GDP growth is an increase in consumption, which requires a substantial increase in salaries.

“It seems to me that the government is still hesitating. God forbid there is a major storm or a bad tourist season because that would change everything,” he concluded.

Translated from net.hr.