Croatia pledges to meet EU deficit target

(ZAGREB) - Croatia pledged on Thursday to raise taxes and cut spending to meet its EU deficit target, but warned this would largely wipe out meagre growth expected this year.

The government intends to increase budget revenues by 4.7 billion kunas (614 million euros, $834 million) this year through changes to the pension system and public firms' profits.

The aim is to meet the public deficit target of 4.6 percent of gross domestic product (GDP) set for it by the European Union, Finance Minister Slavko Linic told reporters.

Prime Minister Zoran Milanovic's centre-left government also plans to cut spending by 3.6 billion kunas through savings on employees' rights or health system reform.

"These savings have a negative impact on growth .... so it's evident that it will have to be corrected towards 0.2 percent this year," Linic said.

The budget had been based on Croatia, which joined the EU last July, rebounding with 1.3-percent economic growth this year.

The economy in the Balkans country is currently in recession, as it has been for much of the last five years, hobbled by a rigid labour market and weak business environment.

Linic presented the guidelines for the reshaped 2014 budget, as well as those for the next two years to meet the fiscal targets set by the European Union.

Croatia should bring its public deficit down to 3.6 percent of gross domestic product in 2015 and back to the EU ceiling of 3.0 percent in 2016.

The minister also announced new taxes for 2015 and 2016, in particular on real estate, interest on savings and capital gains.

On Tuesday, European finance ministers meeting in Brussels said that Zagreb had to present plans to redress its finances by the end of April and urged it to take "decisive" action to curb spending.

The revised 2014 budget is to be sent to the parliament by the end of February.