Croatia hints at new tax hike as EU budget monitoring looms
ZAGREB Oct 21 (Reuters) - Croatia may have to raise taxes to close its widening budget gap, Finance Minister Slavko Linic said on Monday after the European Commission released figures suggesting the new EU member would soon face disciplinary action.
A Eurostat report said Croatia's budget deficit had peaked at 7.8 percent in 2011 and then fallen to 5.0 percent last year. The EU's ceiling is three percent of gross domestic product for the deficit and 60 percent for public debt. Figures for this year's shortfall in Croatia are due in November.
The former Yugoslav republic joined the European Union in July, battling a fifth year of recession and rising public debt.
Its general budget gap was targeted this year at 3.5 percent of GDP but is almost certain to end up higher. Next year it is projected to rise to 5.5 percent, largely due to the costs of EU membership and the interest on earlier borrowings.
"It is clear we will be placed in the EU's excessive deficit procedure. As we don't have too much space left for cuts in the budget, we will also have to increase the revenue side," Linic told reporters.
The Excessive Deficit Procedure (EDP) is a mechanism the EU routinely uses to make sure member states bring back their deficit and debt to tolerated levels.
According to the Croatian finance ministry, the EU is likely to propose corrective measures in January, after reviewing this year's figures and Zagreb's 2014 fiscal plans.
Its public debt is already around 60 percent of GDP and is expected to rise towards 65 percent over the next three years.
Echoing a growing number of analysts who say no major reforms could be expected in the government's remaining two years in office, Linic said room for fresh cuts was shrinking.
"There is some space for further cuts left, but not huge. We cannot reduce pensions, which are already low."
The average pension in Croatia is around 300 euros ($410) a month and the average net monthly salary is about 720 euros - both among the lowest in the 28-nation EU. Unemployment stood at 18.4 percent in August.
Linic did not elaborate on the new taxes but indicated there could be a higher value added tax which, now at 25 percent, is already among the highest such levies in the EU.
Croatia has lost more than 11 percent of output since the recession began in 2008. The government hopes to finally achieve some recovery in 2014 and expects growth of 1.3 percent.
Linic said Croatia did not need a deal with the International Monetary Fund (IMF) at the moment as it was still able to raise funds on international financial markets.
In a recent Reuters poll most of 11 local analysts said there was a 50-50 chance of Zagreb seeking a standby deal with the IMF within two years.
- Air strike kills 15 civilians in Yemen by mistake: officials
- North Korea executes leader's powerful uncle in rare public purge |
- Insight: In Yemen, al Qaeda gains sympathy amid U.S. drone strikes
- Storm to cloak Midwest to Northeast in snow, freezing rain
- Twitter backtracks on block feature after users revolt |