Croatia: Prime Minister Delivers Smoke And Mirrors Speech For Economic Recovery

Smoke-&-Mirror

On 24 September Croatian Prime Minister did deliver the historic speech on the state of the nation and it was no speech of a credible and serious statesman. In my previous post I had in mind that this speech could deliver either a prescriptive confrontation with the economic and social chaos that’s sweeping across Croatia, or a coiffe or cover up of that chaos with an indulgence in political confrontation with the opposition.

Zoran Milanovic had actually chosen to deliver a lecture of smoke and mirrors, evidently expecting that the parliament and the people would end up thinking how his government actually has the necessary capabilities to deliver the badly needed changes and improvement to government’s performance in reducing the critical budgetary deficit and improving economic performance.

According to Croatian TV news HRT, Milanovic laid out four directions his government will be taking in order to bring Croatia out of its crisis and these are: installing law and order in all spheres of life, consolidation of state finances, restructuring and rationalization of government assets and public sector, and, introducing and implementing measures for the rehabilitation and growth of the economy! However, not a single example or specific measure or ways his government plans to deliver on these grand matters that mean life or death.

In order to realise our goal, which is a reduction of budgetary deficit under 3% mark, we must combine intervening measures with reforms in the next three years,” Milanovic said in parliament!

No word about any specific reforms! Just smoke and mirrors that big ideas and big words usually create!

With regards to the “Lex Perkovic” scandal, also referred to in my previous post, Milanovic said that an agreement has been reached with the European Commission and that we will all find out about it in the coming days.  He was adamant that no sanctions by the EU against Croatia will be imposed and that he will continue his battles in showing the EU its discriminatory practices regarding judicial cooperation between member states of the EU. He babbled and ranted until time ran out so he did not have time to speak about the issue of unrest regarding introduction of Cyrillic (Serbian) script on public signs in Vukovar.

Milanovic’s supporters were the only ones (of course) who said he delivered a marvelous speech. The opposition parties all thrust their thumbs down with the general feel that the past two years have been thrown into the wind/ nothing of note for improving the economy achieved. Tomislav Karamarko, leader of Croatian Democratic Union (HDZ) went as far as saying: “You (the government) managed to devastate this country economically, ideologically and morally – you are ripe for departure…”.

25 September came and the Croatian parliament and public were made aware of the agreement reached with EU regarding “Lex Perkovic”: Croatia must and will as a matter of urgency cancel that rushed law that was evidently brought by the government in breach of Croatia’s EU membership agreement and draw up a new one that would follow EU requirements to the letter. Croatian government has set 1st January 2014 as the latest date by which the new law on cooperation on criminal arrest warrants will be implemented in Croatia.

Viviane Reding of the EC said that they would wait and monitor the situation to the very end and then decide what to do. Orsat Miljenic, Croatia’s minister of justice, said: “… we are changing the Constitution to remove the statute of limitations for serious murders…we have a lot of such cases including political murders committed during the past including during the communist regime … we wish to solve those because we don’t want the perpetrators to enjoy the protection of statute of limitations …”.

Only the future will show whether Miljenic’s words regarding prosecuting communist crimes are also a scenario of smoke and mirrors! Certainly, if we’re to judge by the past inaction, it’s all thick smoke and brilliant mirrors; it’ll likely be up to someone other than a pro-communist government echelons to bring about real justice for the victims of communist crimes.

And then came 26 September! Croatian parliament reeled in disbelief when presented with the measures the government is planning to introduce for improving the economy and reducing budgetary deficit. If you suffer from vertigo, this was the time when you would have dropped to the floor, paralised from more of the same futility!

For the period between 2014 and 2016 the government plans to rail in 37 measures in its economic and fiscal politics that will, according to them, usher Croatia into some state of economic and fiscal bliss! All these measures seem to be geared for, is putting out the fire, or at least some of it, in order to prolong the misery that increasing poverty is bringing to the streets.

The key measures are an increase in PDV (goods and services taxes) from 10 to 13% on baby food, oil, flour, sugar, water, and hospitality and tourism services; an increase in excise duty for tobacco and petrol.

Sale of public assets and further borrowing.

Reductions in beneficial or value-added pensions.

Reforms in public sector will include reforms to salaries and reduction of opportunities for promotion, reduction in expenses or government contribution to prescription medicine and outsourcing ancillary services such as cleaning, food services etc.

It’s obvious to everyone except the government, it seems, that all these measures are not at all likely to significantly reduce the budget deficit nor are there any sure tell-signs that there will be the 1.5% growth in economy during the coming year that the government says it will achieve. All these measures are more of those erratically imposed by this government during the past two years, which have brought no palpable relief.

HDZ’s reaction to all this: initiate a motion of no confidence in the government to be placed on parliament’s agenda even as soon as the coming week.  HDZ, the largest opposition party holds strongly that the Social Democrat led government has demonstrated a severe lack of fiscal discipline in closing the critical black hole of budgetary deficit that’s leading Croatia into ruin.

Croatia’s finance minister Slavko Linic seems to shrug off all the critics with evident but concerning ease: “we spend more than what we earn,” he says (HRT news, 26 September 2013), “…there’s a limit to how far you can go in savings so you must borrow, and borrow more to close the gap left by budgetary deficit…”

Distressingly, this reminds me of how things were during the times of Tito’s communist Yugoslavia – the productivity of majority of state owned companies was not even close to cover bare wages for their workers but Tito knew how to avoid panic and fear in the workers and he kept on borrowing and borrowing and eventually even the birds on the trees tweeted: “It’s going to be alright, Tito got another loan for us.”  So, is Croatia falling deeper and deeper into the waters where the descendants of communists and ex-communists will once again bring the country to its knees? Surely that is not the destiny for which so much blood was spilled, so many lives lost in the plight for democracy! Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

Croatian economy: will nationalisation bring home the bacon?

Unemployment across districts of Croatia August 2012 Photo: screen shot from Croatian Employment Bureau website

Whether Croatia’s current government’s dramatic moves to turn the economy around and create jobs that will bring home the bacon for multitudes of unemployed (at 301, 583 or 17.6% unemployed at end of August 2012/ the figure of 20% unemployed in April 2012 has been reduced due to temporary seasonal employment in tourism) is a matter of wait and see.

After minister of finances, Slavko Linic, published in July the “Pillar of Shame”, naming those owing the State coughers significant tax debts only around 7.4 Million EURO of this debt, out of about 5 Billion EURO has made its way into the tax office by end of August 2012, hence removing about 126 out of some 130,000 tax debtors from the “Pillar of Shame”.

This dramatic move to publish the names of tax debtors does not seem to have had the effect Linic was hoping for, at least not yet.  It’s unlikely it will in the longer run if due to nothing else then due to the fact that capacity to honour tax debts for most debtors has hit through the bottom of the barrel a long time ago and little seems to have been done in reviving failing small to medium businesses (or helping create new ones), which usually form a significant part of the backbone in a thriving economy.

Instead of supporting domestic business where it counts (including the development, training, motivation of people in business arena, creating conducive financial assistance including purpose credit lines and/or subsidies, building a healthy competitive economic market within Croatia, etc.) Linic is now looking into massive abandonment of homegrown business leadership potential and extending his neck beyond Croatia’s borders.

Another dramatic move, which unlike the tax debt “Pillar of Shame” has far-reaching negative implications in the areas of domestic participation in and ownership of the country’s economy and work force optimism.

It’s a sad commentary indeed on Croatia’s political system under the current government that a major move is afoot where the government plans to nationalise (take into government ownership, just as it used to be under Communist Yugoslavia) an overwhelming number of struggling companies and sell them to foreign investors. Of course, foreign investment is the buzz word of the day for every economy but rules for associated domestic employment seem somewhat relaxed in Croatia. I.e., it’s not unusual to see a foreign investor bringing into Croatia a foreign work force, particularly in business administration and market penetration; leaving the domestic hopefuls without of a chance.

Dnevno.hr portal reports that “in the manner of old Communist potentates minister of finances Slavko Linic has announced that some 200 public servants will nationalise 20,000 out of 38,533 of domestic companies whose accounts have been under a blockade for several months. Three-member committees comprising of ministry of finances employees will be deciding on whether the State or the banks will recoup their dues from the struggling companies by entering into the companies’ ownership structure. After the companies are raised to their feet again, the State will sell its ownership share, mainly to foreign investors…”

Croatian government’s engagement in saving so many companies can only be seen as stifling the development of healthy domestic business and competition. A similar plan was attempted by the former HDZ (Croatian Democratic Union) government but failed as unworkable.

Privatisation of Government owned companies and other assets, such as property, in Croatia during 1990’s was a nest of obscene corruption and thievery – for private gain of individuals. Furthermore, it did not have as its essential component the development of the work force and foreign and domestic capital into an entrepreneurial platform that would revive and grow the economy. It was pure personal greed in those who managed to purchase government owned assets at a ridiculously low price that was often far below actual value. Hence, Croatia had created tycoons out of paupers, almost overnight.

It would seem that minister Linic is creating a repeat of the effects of the widely suspect privatisation that went on in Croatia before. I.e., in the name of debt private ownership will slip into government ownership so that it can be pushed back into private ownership – this time though, into private ownership of foreigners.

Analyst Damir Novotny has been quoted as saying that “he considers Croatia to be in a specific situation that doesn’t exist anywhere else in the EU. The practice of lasting account blockades of companies owing money, from which accounts creditors and banks can draw whenever they wish and for which the Government calculates penalty interest rates is completely unknown in the EU”.

The Croatian business entrepreneurs who might need some help in developing and kick-starting production and competition or individuals deserving support in developing business administration and operation support (as it should be the practice in all ex-Communist countries that severely lacked private participation in country’s economy) are losers once again. Their future prospects have been harshly circumvented by Linic’s privatisation plan that counts on foreign money and fails miserably at providing opportunities for the relatively impoverished domestic individuals who from no fault of their own, but from fault of having lived under Socialism for decades, are simply not in the position to compete with foreigners even though their potential is great. The earning potential and opportunity to earn the daily bread for home-grown unemployed in this new Linic scheme seems quite low indeed. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

Croatian economy: desperate times equal desperate measures?

Croatia: Tax debtors’ pillar of shame Photo: novilist.hr

He has done it!

Croatia’s finance minister Slavko Linic has erected the  “Pillar of Shame”, naming individuals and companies that, in terms of average wage, owe tax – big time! Some 130,000 names are on the list published today by Croatia’s taxation administration office 

The published names include tax debtors in categories from/and above 100,000 HRK (13,330 EUR) for physical entities carrying on business, 300,000 HRK ( 39,990 EUR) for legal entities  and 15,000 HRK (2,000 EUR) for all other taxpayers (citizens). The format of the list on the website is such that searches are enabled via all three above categories of tax-debt amounts in every county of Croatia. A job made very easy for local snooping, no doubt.

So, anyone wanting to know whether his/her neighbour or the shop down the street hasn’t been paying taxes this is the place to visit.

According to Vecernji List portal the first 100 of tax debtor’s from Linic’s “Pillar of Shame” owe individually more that 20 Million HRK (2.7 Million EUR), while 3,000 of the legal entities owe about 15 Billion HRK (2 Billion EUR).

I expect the website will crash several times for overuse. Names of debtors are already being published, talked about and, undoubtedly, are likely to cause quite a stir and bitterness among people. Especially those who cannot receive a decent medical treatment in public hospitals (funded from taxes) and see a tax-debtor cruising about in a flashy car or prancing around the town square in top designer gear.

Whether this desperate move by Croatia’s finance minister will materialise in any significant tax revenue is yet to be seen. One assumes that all tax debtors susceptible to “scare tactics” had paid their debts soon after the minister announced the “pillar of shame” some months ago.

The possible and dreaded consequences of such “pillar of shame” include that the whole exercise becomes the butt of town square jokes and the individual taxpayer responsibility will sink deeper and deeper into blatant irresponsibility. Furthermore, the mere inclusion into the “pillar of shame” could easily provide an easy way out of business for many businesses – declare bankruptcy under public shame pressures, loss of jobs. This is particularly relevant given that Linic has said in recent days that company tax debts could lead to directors losing their private property to the debts.

Whether the old proverb “you can lead a horse to water, but you can’t make it drink” will be disproved by this desperate measure to bring invigorating revenue, and taxpayer behaviour modification, into a desperate economy is a matter worth following.  However, it just may be a politically valuable  PR exercise for the struggling leftist government and, that’s all. After all, they would want to be seen as “doing everything under the sun” to help the ailing economy make a U-turn into positive figures. But, even if the amounts owed in tax look high, the fact is that it’s barely enough for a very small bandaid on Bigfoot.

If Linic and Croatia’s government were more serious about fixing tax avoidance then, certainly, we would be seeing effective procedures and measures in place that would consistently police tax debts with ruthlessness. The kind of unforgiving monitoring that occurs in developed democratic countries. Human defence mechanisms can go “any which way” in the face of public shame exposure. Risky business, indeed. But, all things said – I do wish the “Pillar of Shame” good success. Ina Vukic, Prof. (Zgb); B.A.,M.A.Ps. (Syd)

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