Finance Minister Marko Primorac said on Friday inflationary pressures were expected to continue to diminish, that the government would very likely revise its GDP growth projections, and that property tax was a very sensitive political issue that the incumbent government would not impose.

Speaking to the press after a cabinet session, Primorac said he expected average annual inflation to be “a little higher than the European average, but not that worrying.”

The national statistical office yesterday estimated that in May 2023 Croatia’s inflation stood at 7.9% compared to May 2022, while compared to the month before it was 0.5%. In May 2023, inflation decreased for the six month in a row and was the lowest since March 2022.

The drop in inflation was as expected and the government’s measures contributed to that, notably the capping of electricity prices and the impact on the market of other energy sources, which are the input for the production of other goods, which then impacts the prices of other products, Primorac said.

As for the GDP growth of 2.8% in Q1, he said it was higher than expected. The government is projecting this year’s GDP growth at 2.2%, but given the first quarter and expectations that the second and the third will also be “good” thanks to the tourist season, the government will most likely revise its projection up, he added.

Asked if GDP growth could surpass 3% this year, Primorac said “we are not sure” right now and that the situation was still uncertain.

The prospects are good in the context of very good announcements for the tourist season and expected investments, including those as part of the National Recovery and Resilience Plan, and accelerated post-earthquake reconstruction, which will also spur demand and growth, he said.

Germany, Croatia’s important trade partner and the market from which numerous travellers come to Croatia, is in a technical recession, but Primorac does not expect that to have a major impact. “The decrease of economic growth in Germany is not that worrying and that large, but all these data call for additional caution.”

Property tax

Since many agree that a property tax is a good idea, including him, reporters asked him why it was not being introduced.

Primorac said it was a very sensitive political issue and would not be imposed by the incumbent government since it was not in its platform.

Most EU countries have that tax but there is no clear consensus on how it should be calculated and what the tax base should be, he added.

Property tax is an instrument that would “complete the whole package” local government units have at their disposal and increase their autonomy, he said.

It’s not easy to introduce that tax given the need to bring documents and land registries in order,  which “requires a certain time,” maybe even years, he said, adding that it also requires a broad consensus and a broad public consultation.

“If there is room and fertile ground to do something like that, it needs to be communicated and explained to citizens very well,” he said.