The HSLS party chairman and his associates oppose plans to reduce the VAT by 1%. They don’t believe that this would improve the economic situation in the country. Instead they have suggested reducing the income tax and contributions paid out from salaries.
HSLS Party chairman Darinko Kosor announced on Wednesday that his party supports the lowering of the income tax and contributions on salaries instead of a symbolic decrease in the VAT. "As Liberals, we advocate a reduction in all taxes, but we believe that reducing the general VAT rate from 25 to 24 percent will not contribute to improving the economic situation, nor would this have a significant impact on citizens, while cutting income tax and contributions would increase citizens' competitiveness," Kosor said.
Economist Sandra Švaljek said that there is no dilemma from an economic point of view and that experts undoubtedly give preference to reducing income taxes. The only dilemma that exists she said, is with regard to what is politically viable and what can have a positive impact from an economic point of view. Švaljek pointed out that Croatia lags far behind the economic development of the European Union, given that its potential growth rate is between 1% and 1.5%.
"With this rate of growth we will need decades to reach the level of development that Slovenia, Poland, Austria or Germany have today, assuming that they are not growing in the meantime. In this kind of situation, it is necessary to make a serious about face in economic policy, especially tax and fiscal policy, given that Croatia now has a tax burden of 46% as opposed to other new EU member states, which have a 38.5% tax burden," Švaljek said.
Švaljek also prefers the option of reducing income tax because she believes that a 1% decrease in the VAT would mean a loss of two billion Kuna for the state budget, while it remains questionable how this would affect consumer prices, noting that prices would probably not decrease proportionally.
Kosor voiced hope that the HSLS’s partners in the coalition government, primarily the HDZ, would support the proposal, but added that his party is prepared to send legislative proposals to that end into parliamentary procedure on its own.