Government to announce new anti-inflation package that incudes windfall tax

As the inflation rate climbed to 5.8 percent in April, the government is expected to unveil a new anti-inflation package on Thursday. 

While officials have not released details of the measures, daily newspaper Jutarnji list reports that the package will include a windfall profits tax on large corporations and a significant increase in the annual flat tax paid by small accommodation providers.

Finance Minister Tomislav Ćorić declined to comment on specific measures on Tuesday but addressed speculation about possible salary cuts in the public sector.

“In drafting our package, we did not intend to harm our social partners in any way. That was not an option,” Ćorić said.

Trade unions insist that the new measures must not negatively affect public sector wages.

“The public should not continually bear the burden of political decisions,” said Dražen Jović, head of the Independent Unions Association.

However, according to exclusive reporting by Jutarnji list, the package could affect hundreds of thousands of Croatian workers beginning January 1 next year as the government seeks to limit spending and “cool down” the economy in an effort to curb inflation. The report suggests this could include a freeze on public sector salaries.

The newspaper also reported that the government is considering a tax of up to 50 percent on excess profits earned by large corporations — an idea that has been discussed for some time. Small accommodation providers could also face a 100 percent increase in the annual flat-rate tax paid per bed.

Pensioners are expected to be among the main beneficiaries of the package, as the tax on pensions above €600 per month could be abolished. According to the report, local governments would lose around €180 million in revenue, although this could be offset by higher flat-rate taxes on rental income.

Speaking about the planned package, Prime Minister Andrej Plenković said the key elements would be fiscal discipline and cooperation from stakeholders in reducing inflationary pressures. He also commented on the proposed excess profits tax.

“There will be some legislative changes, for example to profit tax rules, specifically gross profit margins — excessive margins. Analysis has shown there are certain anomalies that go beyond what is logical and expected in business. Profits are legitimate and we respect the efforts of companies, but some of these deviations are excessive and we would draft legislation specifically targeting such cases,” Plenković said.