Fiscal Policy Commission asks Government to postpone some fiscal measures

Zagreb - The Fiscal Policy Commission has supported the Government's efforts to consolidate public finance as soon as possible, but it noted on Tuesday that due to high public debt and a low rate of potential growth fiscal policy measures must have specific targets and be temporary and efficient.

The Commission, therefore, called on the Government to postpone some of its measures, such as tax changes, which do not meet those criteria.

At a session on Monday, the Fiscal Policy Commission discussed guidelines for drafting the 2021 state budget and the draft budget which the Government submitted to Parliament for consideration last week.

The Fiscal Policy Commission today published an extensive position on the two documents, commenting, among other things, on the Government's macroeconomic projections under which, after an expected GDP drop of 8% in 2020, a gradual recovery of 5% is expected in 2021, followed by a 3.4% growth in 2022 and a 3.1% growth in 2023. The Commission notes that these projections differ in terms of annual dynamics from the latest available macroeconomic projections of the European Commission from early May 2020.

In those projections, the EC forecast an economic decline in Croatia of 9.1% in 2020, and a strong recovery at a rate of 7.5% in 2021.

The Commission notes that the EC is yet to publish its new projections, which are usually prepared during October and are published in early November, and that they could include the effects of a worsened macroeconomic situation caused by an unexpectedly fast deterioration of the epidemiological situation in recent weeks.

Despite that, if the projected level of economic activity in 2021 is observed, budget projections do not depart from those by the EC.

Considering the assumptions and unknowns regarding the development of the epidemic, the Commission considers such forecasts as optimistic.

Since the Government's projections for 2021 do not depart more significantly from the latest available projections by the EC, the Commission considers them acceptable but calls on the Government to closely monitor economic and budget results and to act in a timely manner in case of major departures.