Cause and Effect in European Politics and Law

Croatia Is Preparing for a Tough Battle with the Crisis

Adelina Marini, August 2, 2012

Emotions in Croatia have been running high since July 31st when the Ministry of Finance decided to publish a list with the biggest tax debtors in the country who have not paid taxes for years totally amounting to 30 bn kunas (circa 4 bn euros). To compare, the budget of the country for this year is planned to be 108 bn kunas. In the list there are all individuals and companies with debt over, respectively, 15 000 and over 300 000 kunas. Second on the list of companies is Croatian national TV and radio (HRT) with a debt of over 222 million kunas. The question that torments media and citizens, however, is why now? Outbursts of indignation but satisfaction as well overflow the public domain. The most illustrating example of this is the front page of one of the biggest dailies in Croatia, Vecernji List, where with huge letters is written: "How Is This Possible?", and below are listed some of the biggest and most popular debtors, among which HRT as well. In a small green circle on first page is also written: "Bravo, minister! A list that could change Croatia".

"The list of tax debtors, which the MinFin publicly announced yesterday, raises more questions than provides answers. But it is very much certain that this will change the attitude towards the payment of taxes in Croatia". Bravo, minister Linic!". This is how Vecernji List begins its series of articles on the issue, spreading on a number of pages. The newspaper, though, asks the same question as was asked by the TV outlets the other night during their numerous live events and information on the topic - how is it possible that for years no one could have done anything to clean these debts?

The publication of the name and shame list, that excited the vacation spirits in this Adriatic country with upcoming full fledged EU membership as of the 1st of July 2013, has a very good timing when the minister of finance, Slavko Linic, for almost a month is forced to retreat from his forecast for an exit of the recession yet in the first semester of the year. In an interview less than two months ago, he continued to claim that this summer the country would surface up with a positive growth of 0.8% but in an interview with Reuters this week he already admits that "we will be happy if growth is around zero and if we avoid a drop of activity". Moreover, Croatia is threatened by a credit rating downgrade and if that happens,Minister Linic admits that the government would have to resort to the assistance of the International Monetary Fund in order to service its debts.

Against this background there are more bad news coming. According to the latest data for employment, in Croatia every hour there are 40 lay-off notifications. The number of unemployed is 298 437 people, and after the summer temporary employment in tourism it is expected their number to even reach 350 000. The total number of the labour force, according to the CIA fact book, is 1.7 million people. Local analysts are not united in their opinion to what increase of unemployment is due, which is on its way to reach 20%. According to some, most of the new jobless will come not from the public sector but from the private one because of the structural problems of the economy. Others think, however, that the restructuring of the industry sector and the consolidation of the services sector are the reason for the growing numbers of unemployed. The increase of jobless will exercise additional pressure on the budget where more efforts are invested for spending cuts.

In Croatia, since the beginning of 2011, a new law for fiscal discipline is in power, according to which each year spending must be reduced by 1% of GDP until the budget comes up to a surplus or is balanced.

Apart from increasing revenue collection, the government has to focus as well on investment, is the advice of the EU, embodied by the chief of the EU delegation in Zagreb, Paul Vandoren. In his words, the country does not attract foreign investments and has to undertake new measures to boost them. Part of those measures are expected to be filed in Parliament yet this autumn, became clear from the meeting of Deputy PM Cacic with the EU delegation head in the Croatian capital. Then it is expected a draft legislation to be proposed to boost investments, envisaging investors that invest at least 150 000 euros to pay lower profit taxes. That threshold now is 300 000 euros.

Besides, Croatia must finally put an end to another issue that is persistent in the European Commission reports throughout Croatia's accession process - the privatisation of shipyards which pile enormous debts and are a burden for the budget. Among the debtors, published by the Ministry of Finance the other day, are many state-owned companies and even ministries. Some of the revealed on the "wall of shame", as local media and commentators began calling the website, do not accept all the stated amounts. For example, HRT claims that it owes only a third of the 222 million kunas.

For sure, the issue will continue to occupy the Croatian society for months to come, which are forecast to be growingly tougher. And again a piece of news from the last days is that in the autumn price hikes can be expected for fundamental food products of up to 10% because of the dry weather conditions this summer. A fact is, however, that the society backs the government in its efforts to pursue all those who evade obligations on the back of others. In a commentary in the Vecernji List, Marko Biocina points out that every kuna of unpaid debt dug a whole into the budget, which was then patched by loans. This means, he writes, that every kuna of unpaid debt cost a kuna and 10 lipa of public debt, paid by all the citizens of the country.

The chief of the tax administration here said for the Croatian Nova TV on Tuesday that of those almost 30 bn kunas she expects at least half to be collected. But this might prove difficult, local media point out, because some of the debts are older than 10 years and the bosses of those companies no longer occupy these positions. Nade Cavlovic Smiljanec vowed that the tax authorities would reach out even for the relatives, if necessary, in order to secure payment. Among the debtors is the company of former Foreign Minister Mate Granic, which owes to the treasury 854 896 kunas.

For the Vecernji List, the former top diplomat assures that the debts will be paid and explains that the debt was piled because of insufficient turnover liquidity. One of the debtors, Assja Piplovic, who owes over 6 million kunas, claims that her debt is the result of complete but unpaid by the municipality of the seaside town of Porec work. In the black list there are many famous sport players and sport clubs. Everyone of them has a story of their own for the situation, which additionally feeds the question - how will the state manage with collecting these debts?

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