Nine Reforms That Will not Change Croatia
Adelina Marini, 2 January 2014
At its last for 2013 meeting, the Croatian government has approved a plan of nine new and long-term reforms, the main purpose of which is to reduce spending and increase efficiency. The presentation of the plan came just days after the European Commission recommended the launch of an excessive deficit procedure (EDP) against Zagreb. Two facts, however, bring up the question how serious are, in fact, Zoran Milanovic's efforts to implement real, deep and comprehensive reforms in the country, which has been in recession for five years mainly due to the lack of bold steps to restructure Croatia's economy. The first fact that brings doubt is that the plan was presented by Deputy Prime Minister Milanka Opacic who is also a minister of social policy and youth instead of the prime minister. The second is that there are no specific numbers opposite to each reform.
Ms Opacic's news conference took place an hour and a half before the post-Christmas meeting of the cabinet. Much more weight the measures could have had if they were personally presented by the premier. Besides, to the question how much exactly is expected the budget spending to be reduced with the new measures, Ms Opacic dropped the big news that this will happen in the beginning of January when Finance Minister Slavko Linic is expected to present the first for 2014 review of the Croatian budget. An exercise that has proved one of the most frequent for this government. Then it will become clear which measure how much money could save.
There was another thing that created a feeling of rush and urgency - the way Milanka Opacic responded to the question of this website whether the proposed reforms are those Croatia is supposed to present to the European Commission by April 30th in the framework of the EDP. Her arguments were somewhat weak about why now - two years after the beginning of the term - such reforms are being launched. According to her, it was not possible to launch them before the systems have been consolidated. They had to be prepared first and then begin reforms because, otherwise, the impact would be devastating. And although the planned deadlines for each reform to be coinciding with the deadlines the Commission gave Zagreb to normalise its budget deficit and debt, Milanka Opacic did not answer categorically the question whether these are the reforms to achieve this.
She said that they are an expression of "our consciousness that we need change and these reforms are necessary". They will also serve to show the EU in what direction Croatia is moving and what does it plan to do. And the plan includes the following nine points:
1. Integrate accompanying services (shared services) or an integration of the electronic systems of accounting, files and other financial services in the public sector;
3. Unification of public procurement;
4. One-stop-shop for collecting taxes;
5. Reform of the social bargaining;
6. Reducing budget spending and replacing it with EU funds;
7. A master plan for hospitals which includes merging of hospitals;
8. Restructuring of the schooling system, which envisages closing schools with a small number of children;
9. Reorganisation of the judiciary to accelerate justice.
Some of these reforms are short-term - by the end of 2014 - or long-term - by 2016. Either way they will be painful and will cause a very serious headache for the government. Although they are relatively explained in detail in Milanka Opacic's presentation [in Croatian language], the presented nine measures do not give a very clear idea what exactly will be done, how much will it cost in terms of money and jobs and will broader support will be sought to ensure successive governments will continue them. Most probably the package will gain full density in the spring when it is expected the negotiations with the Commission to begin on how to achieve the targets for reduction of the budget deficit and to control the overwhelmingly growing public debt which is expected to reach the Stability and Growth Pact (SGP) ceiling of 60% of the gross domestic product precisely in 2014.
The plan of nine reforms was a first item on the agenda of the cabinet meeting on December 27th and the second item was the adoption of the final text of the draft law on amending the fiscal rule for Croatia. It practically introduces some of the fundamental indicators of the European semester and changes the existing fiscal rule which envisaged the budget deficit to be reduced by 1 percentage point every year. This, according to Mr Linic, the finance minister, is impossible with a five-year-long recession. Instead, the rules of the SGP are introduced for a deficit of 3% of GDP and the debt not to exceed 60 percent, while the structural deficit to be no more than 0.5% of the gross domestic product.
At this stage, the proposed reforms are discouraging. Many of them are yet to be analysed and publicly debated. This means that it is not impossible the government to spend the last two years of its mandate in preparation for the reforms and the reforms themselves to be left for the those who come to power next. And given that no broad support is being sought for at least the most painful measures, this could doom the, in fact, good ideas to remain on paper only.