24th Position Paper of the Fiscal Policy Commission on the Draft Semi-Annual Report on the Execution of the State Budget of the Republic of Croatia for the First Semester of 2023

Despite unfavourable global trends, Croatia’s economic activity achieved strong growth in the first semester of 2023. Such growth, due to favourable labour market trends and significant price increase also facilitated an increase in revenue collected from taxes. At the same time, fiscal expenditure also increased but at a slower pace than income, finally resulting in a surplus of both the state budget and the general government budget. Data on the execution of the state budget in the first half of 2023 indicate that state budget income is being achieved at a satisfactory level, meaning that the total planned budgetary income at the level of the entire 2023 could also be achieved in accordance with the projections. At the same time, state budget expenditure increased, primarily as a consequence of high inflation and Government measures. Such circumstances represent significant risks in the sense of increasing expenditure, which, in case of the materialization of negative risks and significant slowing down of economic growth, could undermine the state of Croatian public finances. Therefore, the Commission highlights the importance of continuous monitoring and examining the fiscal position of Croatian economy, as well as of increasing available fiscal room, so that fiscal policy could act promptly and efficiently in case economic growth slows down and unforeseen fiscal risks are realized.