The introduction of a property tax is neither hasty, ill-considered nor foolish. The situation should be considered in its entirety, Finance Minister Marko Primorac said on Thursday when he presented amendments to a tax law package in Parliament.

The main changes to the tax system are aimed at tackling certain current economic and social challenges. These include the sharp rise in property and rental prices due to low taxation, labour shortages and issues related to inflationary pressures, he said.

The current system makes housing unaffordable for many families

The changes include amendments to the Local Taxes, Income Tax, VAT, Contributions, General Tax Act and the Tax Administration Act, which will come into force early next year.

The property tax is essentially a transformation of the existing holiday home tax, Primorac said of the tax, which has been most heavily criticised by opposition MPs.

It is being introduced because the low taxation of real estate and the significant under-taxation of short-term rentals has prompted many entrepreneurs to invest surplus funds in real estate, which has driven up demand and prices, making housing unaffordable for many families, the minister said.

This has been discussed for a long time and the introduction of a property tax is not hasty, ill-considered or foolish, he replied to the criticism.

Proposed tax changes equalise the tax treatment of long-term and short-term rentals

In order to further increase the fairness of the tax system, it would be advisable in the long term to consider taxing property values instead of floor space. Primorac replied to MP Dalibor Paus (Democratic Party of Istria), who asked what citizens could expect in the second phase, that this was currently not feasible as not all properties could be valued.

The proposed tax changes include harmonising the tax treatment of long-term and short-term rentals, reducing the tax burden on labour by increasing the basic personal allowance from 560 to 600 euros, encouraging the return of Croatian expatriates through a five-year exemption from income tax and standardising health insurance contributions by ending the five-year exemption from employer contributions for employees under the age of 30.