ZAGREB, 20 May (Hina) – Finance Minister Marko Primorac said on Tuesday at a conference organised by the American Chamber of Commerce in Croatia (AmCham) that inflation in Croatia could finally be defeated next year, and that no significant tax changes were expected for the remainder of this year.

Speaking at the conference titled “Sustainable Tax System: Policy, Practice and Perspectives”, Primorac addressed the European Commission’s forecasts for Croatia’s economic growth and inflation.

The Commission announced yesterday that following a growth of 3.9% in 2024, it expects the Croatian economy to grow by 3.2% this year, while inflation, after last year’s 4%, is expected to slow to 3.4% this year and to 2%В next year, mainly due to a decrease in food and service price inflation.

Primorac said the forecast reflected the government’s objective to ensure a significantly higher rate of economic growth compared to the EU and euro area averages. He added that growth this year and next would be three times greater than the EU average.

“This contributes to citizens’ living standards, but also to improving the business climate and economic growth. As for inflationary pressures, in line with our expectations, the forecast shows a reduction in the expected inflation rate, and that is also a good sign”, he said, adding that he hopes the trend of inflation slowing will continue.

Asked whether inflation could finally be considered defeated if it reached 2%В next year, he replied: “I believe so, since an inflation rate of around 2%В is considered the natural rate of inflation, it’s not something that should be actively suppressed.”

Primorac believes economic growth increases demand, especially when that growth is driven by an increase in gross fixed capital investment, as is the case in Croatia through private sector investment and significant public sector investment, which is primarily focused on improving and expanding infrastructure and post-earthquake reconstruction.

When economic growth is driven by private consumption, as is also the case in Croatia, it encourages an increase in aggregate demand but also contributes to inflationary pressures, he added.

“We believe this combination of macroeconomic indicators in Croatia, alongside an inflation rate that is continuously decreasing and approaching the target level of 2%, has been good for the Croatian economy.”

Regarding taxes, Primorac said the Tax Administration was working on three major digitalisation projects. The first is the establishment of a population register, which will be fully operational by June 2026. The second is Fiscalisation 2.0 and the expansion of Fiscalisation 1.0. The third project is the digital transformation of the Tax Administration.

Good business climate in Croatia

AmCham Executive Director Andrea Doko Jelušić said AmCham, faced primarily with inflation and the need to retain and attract skilled labour, had once again this year prepared recommendations for improving the tax system. Among other things, they propose increasing the non-taxable allowance to €970В and introducing limits on contributions for health insurance, similar to what has already been implemented for pension insurance contributions.

“In the medium term, we believe it would be beneficial to continue lowering income tax rates, from 30 to 20 percent, and then from 20 to 10 percent.”

She said AmCham members “speak of a very good business climate in Croatia in comparison with other countries in Central and Eastern Europe. We know the macroeconomic framework is very favourable, with an excellent credit rating, and we believe this is the right time to increase investments in research and development and to attract further investment.”

The main limiting factors for business in Croatia, she added, are the shortage of labour, as well as the cost of labour, whether through taxes or contributions, and inflation.