Croatian economists welcome tax reform but warn not enough to boost growth

Croatian economists welcomed the tax reform package which adopted by parliament on Friday and will be entered into force in Jan. 2017, but warned it would not be enough for sustainable growth.

"I favour the idea of cutting personal income tax (PIT) rates, as well as simplify the tax system", Zdeslav Santic, the chief economist at Societe Generale Splitska Banka told Xinhua.

In the short term,the reform would make positive results and a higher GDP growth could be expectd, he said, adding but this was only a first step and Croatia has to do more to boost the economy.

The more important tasks for Croatia were to remove administrative barriers, develop small and medium-sized enterprises, relieve public companies and to make better use of EU funds, Santic said.

Hrvoje Stojic, economic research director at Addiko Bank, viewed the tax reform package as a program growth-friendly.

"It not only ensured lower tax burden for citizens and companies, simplified and broadened the tax base but also stabilized the tax regime," he said.

The cutting of income tax sent a message that Croatia wanted its labour more competitive. Lower income families would benefit from exempting PIT and would spend less on electricity, garbage collection and kids' equipments due to VAT was reduced to 13 percent on these basic needs.

The tax reform, especially lowering income tax and tax for small-medium-sized firms would stimulate growth, Velimir Sonje, an analyst at Arhivanalitika said.

It would produce a positive impact on the economy, but the government should also reform a business climate and re-structure state-owned enterprises, he said, adding "if all these measures were taken, I believe Croatian economy would have a stronger grow."

However, union leaders viewed the package as a way to even greater enrichment of the richest.

"The poorest will get nothing, poor only get a little, while the main beneficiaries are the richest", Kresimir Sever, leader of the Independent Croatian Union said. The changes of the income tax rate would expand social inequality," he said.

Silvano Hrelja of the Croatian Pensioners' Party (HSU) said that the majority of pensioners would not have any benefit and their living standards would continue to decrease.

According to new income tax law, two tax rates -- 24 and 36 percent will replace current three tax rates -- 12, 25 and 40 percent.

On Friday, the tax reform package, consisting of 16 laws was adopted with a majority of 78 votes. The opposition in the parliament led by the Social Democratic Party (SDP) boycotted the vote due to dissatisfaction that their amendments were rejected.

They also believed the tax reform only benefited those who were already well-off. Endit