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News 04 Oct 17

Croatian Govt Spending Risks Budget Deficit Hike

With higher benefit payments to 1990s war veterans, the purchase of military jets and debt settlements in the health sector, the Croatian government again risks inflating its budget deficit.

Sven Milekic
BIRN
Zagreb
The Croatian government in session. Photo: Anadolu Agency/Stipe Majic

As the Croatian government prepares to spend more on 1990s war veterans, as well as purchasing 12 military jets and covering debts in the health sector, it risks increasing the country’s budget deficit, experts warned.

“This is the wrong direction for the government's economic and fiscal policy,” economic analyst Damir Novotny told BIRN, saying that there is a risk of increasing the budget deficit “if ministers play with public money”.

Croatia lowered its budget deficit from 3.4 per cent GDP in 2015 to only 0.8 per cent in 2016, and in June this year, it was able to leave the EU’s excessive budget deficit procedure - a series of correctional measures which were imposed on Croatia from January 2014.

Although Novotny noted “positive trends in state finances”, he said he was not sure that increases in public spending should be made to finance concessions to war veterans or the purchase of military jets.

“This type of public spending has no [positive] implications on the economic growth,” he said.

Public spending would be beneficial for the economy if it strengthened state-owned companies and companies in general, Novotny argued.

“The government should have invested some money in research and the development of companies,” he said.

The government has said that it will the tenders for the fighter jets not only according to the price – estimated between 500 million and one billion euros – but also according to the opportunities to enhance economic cooperation with the country that is selling them.

Political analyst Zarko Puhovski said that he believed that the war veterans were being rewarded financially by the authorities because they helped the centre-right Croatian Democratic Union, HDZ come to power.

“In this particular situation, I don’t believe they are giving the money to those that should be the top on the priority list according to the logic of justice, but rather according to the logic of clientelism,” Puhovski told BIRN.

When then HDZ needed support in order to secure the chair of parliament in May, it made a deal with independent MP Zeljko Glasnovic who insisted that the state should pay pensions to former members of the Bosnian Croat army, the Croatian Defence Council, HVO.

The HDZ said however that it did not make the concession to Glasnovic because it envisaged the pensions payments for former HVO members in its manifesto in October 2016, when it came to power.

Parliament will soon pass a new law on the rights of 1990s war veterans, which will increase the annual budget for veterans by 115 million euros, daily newspaper Jutarnji list reported on Saturday.

According to the new law, the state will finance lawyers’ costs for veterans standing trial for war crimes, provide free full-body health check-ups every three years, abolish limits for the receipt of deceased veterans’ pensions by family members, lower the retirement age for veterans, reinstate the monthly unemployment payment for veterans, as well as other privileges.

Daily newspaper Vecernji list reported on Tuesday that officials in some towns and municipalities were shocked by the proposed legislation that envisages that all administrative units need to reserve between 0.3 and one per cent of their budgets for veterans’ organisations and activities.

As well as paying for the veterans and the military jets, the state has to cover its 270-million-euro debt to the Croatian Health Insurance Fund.

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