MP: Cabinet to Announce Increase in GST

Increasing GST is taking from the people and giving it to officials, when the state is inefficient due to those officials, says Jurcic.

ZAGREB, CROATIA - Not only has the HDZ (Croatian Democratic Union) not fulfilled its pre-election promise and reduced GST from 22 to 20 percent, but the vice-president of the Croatian Cabinet Damir Polancec said in an interview on Croatian radio yesterday that they consider increasing it as an anti-recession measure.

“A structural problem of Croatia is the low rate of employment, because 57.1 percent of the population is actively working, one pensioner is supported by 1.4 employed people. We say that the pension system will not come into question, and the economy needs to be unburdened. But what is the income and what is the expenditure of the pension system? Income is 20 million kuna, expenditure is 35 million kuna. When we give for healthcare, railways, shipbuilding, we come to what is a real burden for the Croatian economy. We can unburden the economy by reducing contributions (by employers for the healthcare and pensions of their employees). Yes, we will reduce their contributions, but we need to make up for that amount with new taxes. Which taxes? Is that tax on assets? I would not hesitate for something else. Everyone is talking about GST. Many countries, amongst which are Great Britain, have reduced their GST, and consider it to be an anti-recession measure that will stimulate spending. I do not believe it to be an anti-recession measure and that it will drastically increase spending. I think that in the long term we need to think about changing the GST to be higher. And I know that it is not nice or pleasant to hear” explained Polancec.

None of the people we talked to, who are experts in economic questions, understood the logic. On the contrary.

“Increasing the GST might lead to a slightly larger income for the state budget, but at the same time it would negatively impact the cost of production and increasing the price of the final product, which would reduce the competitiveness of our products and the purchasing power of our citizens” says the economic expert Mladen Vedris.

“If the aim is to maintain public finances, and at the same time not further burden the business sector or the citizens, then it is the most realistic to keep the current level of GST. If these were times of economic growth, we could think of unburdening by reducing taxes, but then not with the GST but from taxes on personal income, so that the reduced cost of employment reduces the expenses in production and increases the competitiveness of our economy.

Vedris’ proposal to the cabinet is that intervention and anti-recession measures are needed for the middle term of lowered liquidity, state savings and stimulation of the economy, speeding up the payments of responsibilities towards the state, and state and public companies towards the business sector.

Last Friday, the Croatian parliament discussed the SDP (Social Democratic Party) proposal for reducing GST on certain items. The items include: oil, lard, children’s food, children’s clothing, shoes and nappies, electric energy, heating and liquid energy. The proposed rate of GST for these items is 10 percent. The cabinet rejected this with an explanation by minister Ivan Suker, who said that one of the conditions of entering the European Union is that the rate of GST is not reduced. When the opposition argued that Great Britain did this, and that they are a member of the European Union, Suker answered:

“Reduced rates can be implemented by member nations, which we are not. As a candidate nation we should ask special permission from the European Commission.

SDP’s economic expert Ljubo Jurcic immediately said that this is not true.

“That is political demagogy and rhetoric. Taxation rates do not fall under our responsibilities towards the European Union, but are a principle harmonization of taxation politics. The public does not know what the European Union is seeking, and that fact is being exploited according to needs. I think that Polancec’s statement about the GST was not a coincidence. To increase taxes you need a great political coalition, or the ruling party falls” said Jurcic.

The effects of increasing the GST, he considers, cannot be anti-recessionary.

“A recession is the reduction of production and national income, and anti-recession measures go to increase manufacturing and national income. In the beginning, therefore, Polancec’s stance is incorrect, because it does not lead to that. I know that proposal is coming from financial circles, who do not look at economics or social policy. Increasing the GST is taking from the people and giving to the officials, at a moment when the state is inefficient because of those officials. If the state was working well, we would not have come to such a crisis, because the global one has not come to us yet. Now they would save that administration by taking from the people” says Jurcic.

During a parliamentary discussion on SDP’s proposal, the IDS (Istrian Democratic Assembly) parliamentarian Damir Kajin, stated that the GST cannot be reduced in these moments, even though his party advocated reducing taxes earlier. Will he support the announced increase in GST?

“Just like the opposition must know that there is no room for reductions, the ruling coalition needs to know that there is no room for increases. It is clear that we are in a recession. It will last long in Croatia and now it will be the easiest to gather money via GST. Economic activity is wavering, the Cabinet does not allow people to work on Sunday, because if they did that would bring more GST into the budget. Besides that the state is the main promoter of non-liquidity. When via all that you cannot increase economy activity, then the team in power can increase taxes. And the cabinet does it without flinching” says Kajin.

Polancec’s idea that was presented yesterday does not surprise him, the vice-president has been mentioning it in public for a few weeks now. Kajin considers that this prepares the terrain and that a larger rate of GST will be part of the anti-recession measures that is being prepared by the Institute of Economics for the cabinet, which will be presented to the public at the next meeting, on Thursday.