Former Finance Minister Slavko Linic gave a telephone interview for N1 television's morning programme Novi Dan, in which he commented on the dire state of affairs at Croatian shipyards, the growth of GDP, and the announced tax reform.

Do you see a solution for the troubled Pula-based Uljanik and Rijeka-based 3. Maj shipyards?

“I believe that the Croatian government should make good on its promise and pay out salaries today or tomorrow. The way out of the crisis is to talk with the government about the restructuring, about debt relief, and getting pension funds to take part in the restructuring…”

How should the government pay out salaries? The banks want state-guaranteed collaterals, and the government says they cannot issue any new guarantees?

“I think the government could make special decisions to use funding through the Croatian Bank for Reconstruction and Development (HBOR). Regardless of the fact that this would not be spent on development, but for future restructuring.”

Croatia had already spent 30 billion kuna on companies in the shipbuilding sector, don’t you think extra money would be wasted?

“Do we want to have an industry or not? The biggest problem is expensive labour – not because of net salaries but because of gross wages. The health insurance contributions are too high. We have 1.3 million employees funding health care for everybody else. That’s the cause of this situation. We have never eased that burden for workers, to shift it to wealthier people, and those who own property that is not being used. It is up to the Croatian government to decide to fight for the industry because without it there are no investments and economic growth. These are exporting sectors. If the government has no plans to change its policy and lower the burden on labour by reducing salary contributions, it should close the shipyards.”

Why don’t workers make decisions on the job the management is doing, do they carry part of the blame, was the supervisory board responsible for this?

“They had to follow what the management weas doing, they had to supervise what was being done. This is the reason why workers’ shareholding only proved to be successful in a handful of companies. They all received their salaries and didn’t care who was sitting in the supervisory board. They all knew that gross salaries are too high, and that if they don’t win good order contracts, that they would suffer losses. The responsibility rests with workers, the supervisory board, and the management, nobody can deny that. The management and the board will leave the company, but the issue remains whether a new owner would be found who would keep the industry alive.”

What would losing 5,000 jobs mean?

“It would be a huge loss for the industry, and a new wave of people leaving abroad for work, this sort of workers are sought after in Europe. A good portion of them could find jobs outside the country. It would also hurt exports, and also universities, because we would no longer need people to work in shipbuilding. The 3. Maj shipyard could find a partner through a controlled bankruptcy, because the reason for its lack of liquidity are loans it gave to Uljanik. For Pula, this would mean destruction and a fire sale of property.”

What’s your take on the planned tax reform?

“We have two problems here. Tourism has posted only slight growth this year, markets competing with Croatia are recovering. Tourists are turning back to the Middle East because it’s cheaper to travel there. The lower VAT rate for food and drinks should have been re-instated. This would spur spending and that is the only way to fight to achieve growth instead of stagnation. Health care contributions paid out of gross salaries should be reduced, the financing of the health care system should move towards property sources. This would solve a lot of problems at the local government level, and would reduce gross salaries. It would increase competitiveness. Until we solve the problem of high gross wages, and a lower VAT rate for tourism, we will be far from long-term solutions to problems.”

But plans have been announced to increase health care contributions?

“That’s a very bad move, that will increase gross salaries, rather than net amounts. This will result in workers leaving the country, and will lead to a shortage of workers. Employers have been warning about this. Even the proposal to take younger pensioners back to the labour market, that hasn’t been announced for this phase of the tax reform.”

Croatia posted a 2.9 percent GDP growth in June 2018. What is the structure of the growth?

“This is mainly due to spending. As long as we have this kind of spending, things are fine. Part of it comes from salaries, if we put pensioners to work, that spending would increase even further. Spending always represents a sort of stability, it may not grow that much from year to year, but if tourism keeps growing, along with the number of employed people through allowing pensioners to work, we will have economic growth for a few more years.If we close the shipyards, that will greatly affect exports. The moves the government made about Agrokor were smart and good, because a good share of exports comes from food and processing industries. However, we export a lot of raw material, which isn’t good, because this brings no new investments. On the other hand, public companies are not investors…”

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