Zagreb, 22 July 2009 – “Crisis tax” of 3 percent and the increase of VAT from current 22 to 23 percent is the newest proposal in negotiations between the Croatian Government, trade unions and employers. According to this proposal zero VAT on bread, milk, medicines, orthopaedic aids and books, which complies with EU acquis communautaires, would be cancelled.

Trade unions and employers were shocked by the Government’s latest proposal of introducing “crisis tax”. Namely, if the state introduced this new tax, it would be applied not only to all wages and pensions above 3,000 kuna (cca 400 EUR) but also all kinds of income (author’s fees, managerial bonuses, dividends). This would bring somewhat less than 2 billion kuna (cca 270 million EUR) to the state budget, but trade unionists warn that such linear taxation of everything would represent an additional burden for citizens` standard, whereas the employers complain that this tax would additionally discourage entrepreneurship and reduce the already weak competitiveness of the Croatian economy.

Some independent economists are also against this tax and they warn that many workers and employers will, as soon as the new tax enters into force, change their employment contracts so as to have wages under 3,000 kuna, and the rest will be paid in cash, so we will face the growth of grey economy.

On the other hand, the Government perceives this new tax as the substitute for their first proposal of reducing wages in the public sector for 6 percent and reducing pensions higher then 2,000 kuna (cca 270 EUR) for 3 to 10 percent.