The planned reduction of income tax has pleasantly surprised many because such moves by the government are not expected right after elections, but what is certain is that not all are happy about it, the Jutarnji List daily said on Friday.
Since 2018, all income tax revenues go into local government budgets, and according to data from the Ministry of Finance, they reached 14.6 billion kuna (€1.9 billion) last year.
If Prime Minister Andrej Plenkovic goes ahead with his decision to cut the income tax rate of 36% to 30% and the 24% rate to 20% as of 1 January next year, a rough calculation by tax experts shows that local government units could be left without 2 billion kuna (€265 million), the paper said.
Since it would be difficult for the local government units to handle such a loss of revenue given their present organisation, the question arises whether there is a little more ambitious plan behind the government's announcement of income tax cuts.
This could be inferred from statements made during the election campaign, including those by the Minister of Public Administration and a member of the main committee of the ruling Croatian Democratic Union (HDZ) party, Ivan Malenica.
In addition to reducing the number of ministries, Malenica was quoted as saying that the number of local officials would also be reduced and that everything would be done to make public administration effective and efficient. This means digitalisation of local government and connecting local government institutions to central government registers, services, applications and platforms.
At what pace the government will embark on the reform process is yet to be seen, but it can be expected that the planned income tax cuts will go hand in hand with measures to resolve the problem of revenue loss for local government, Jutarnji List said.
(€1 = 7.55 kuna)