Croatian general government budget at HRK1.6bn surplus in H1

The general government budget reported a surplus of HRK1.6bn or 0.4% of GDP in H1, FinMin Zdravko Maric reported during the Thursday’s government session. The finance ministry has not yet published the data though. The finance minister informed that the central government budget reported a deficit of HRK1.9bn (up from HRK1bn in January-May, according to earlier released data by the finance ministry), which was a little higher y/y, but the local government units and extra-budgetary beneficiaries generated surpluses, which allowed for a fiscal surplus to be reported in H1. Maric noted that this was a good result, in line with what was achieved in 2017, which, among other things, was one of the main reasons why Croatia exited the excessive deficit procedure, which led to its credit rating and outlook being upgraded as well as allowing for significant savings on interest costs. Maric admitted that a key risk for the budget in the rest of the year lay in the problems affecting shipbuilding group Uljanik to which the government had extended state guarantees in the past (previously he said that some EUR70m might be activated) and was now trying to help it stay afloat. Local media claim that the government now fears that the EC may order the reimbursement of all the aid given to 3.Maj and Uljanik.

State budget revenues amounted to HRK59.9bn in H1, up by 2.9% y/y — Maric recalled that as of January the state budget had entirely forfeited income tax, leaving that to local and regional government, which is one of the main reasons for tax revenue rising by just 0.8% y/y and being one of the reasons for the state budget reporting somewhat higher y/y deficit in the first six months of the year. VAT revenues amounted to HRK22.5bn, 4.9% higher y/y, while the profit tax revenues fell by 1% y/y to HRK .9bn. Revenue from special taxes and excises amounted to HRK7.1bn, up by 7.3% y/y with the highest increase of 22.5% y/y being reported by revenues from excises on tobacco products. Revenue from vehicle tax, which was the subject of one of the biggest tax reliefs, fell by 4% y/y, but Maric said he expected that by the end of the year that trend will be corrected. Revenue from contributions grew by 7.5% y/y to HRK12.2bn.

State budget expenditures amounted to HRK61.8bn in H1, 3.3% more y/y, whereas spending on wages increased by HRK750m y/y from HRK13.6bn and material costs were up by HRK130m y/y to HRK5.4bn. In line with the upgraded sovereign ratings, interest expenses were lower by HRK363m y/y to HRK4.8bn in H1. Expenditures for subsidies amounted to HRK3.5bn, of which HRK2.4bn was for the agricultural sector. The state paid out HRK6.6bn for foreign aid, HRK1.6bn to the EU budget, HRK1.5bn was transferred to the Croatian Health Insurance Fund and HRK1bn was paid in fuel subsidies to the road authority. When it comes to allowances for citizens and households, as the most significant item on the expenditure side, they amounted to HRK23.7bn, of which HRK19.4bn was for pension allowances. Welfare allowances amounted to HRK1.1bn, while HRK768m was paid for additional maternity leave and one-off payments for newborns, which is an increase of almost HRK200m compared to last year.

PM Andrej Plenkovic noted that the country is now just one step below investment rating. He pointed out that if the ratings were raised, Croatia would benefit from lower interest rates on the international or domestic financial markets, which would leave more money to citizens and entrepreneurs. He added that it was necessary to continue with the responsible fiscal policy because that was a message for the reliability and credibility of the government and its policy, and the way it handles public finances and taxpayers’ money.

The government targets deficits both on central and general government level in 2018, at 1.1% of GDP (central government) and 0.8% (general government). The target for the general government budget in ESA terms is set at a deficit of 0.5% of GDP, indicating deterioration from the 0.8% surplus recorded last year.

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