Revenues in the first eight months of the year amounted to HRK 70.25 billion, while expenditures were HRK 83.26 billion, according to Finance Ministry figures.
Profit tax revenues were HRK 3.8 billion and were HRK 1.7 billion lower than in the first eight months of 2011, mainly due to the non-taxation of reinvested profit, said the minister.
Value added tax revenue dropped HRK 300 million, because of no import VAT revenue in August. The minister explained that after Croatia joined the European Union on July 1, VAT is paid after the sale of imported goods. He said this was a one-off blow that would be compensated in the remaining four months of the year and that it did not affect the payment of salaries, pensions and subsidies.
Linic said material expenditures were declining, while financial expenditures and those to bail out the health sector were rising. "The rehabilitation of the health sector is on this government's programme and will in some way cause a revision, but only once we know the complete health sector rehabilitation programme."
In the first six months of the year, budget revenues totalled HRK 52.3 billion, down 1.4% on the year, while expenditures rose 8.3% to HRK 63.7 billion. The deficit was HRK 11.4 billion, accounting for 3.4% of GDP, the minister said, recalling that the government's plan was to bring the general government deficit to 3% of GDP reference value.
Linic said the main reason for the deficit increase was the servicing of hospitals' debt of HRK 3.3 billion.
The other major expense is the earlier payment of farming subsidies, which were HRK 760 million higher than in the first six months of 2012. Expenses also grew for shipbuilding, rail restructuring, and Croatian Bank for Reconstruction and Development loans and interest rates.
Linic said interest rates on borrowing grew by nearly HRK 500 million, as did those on the cost of pension indexation.
He said the state budget saved HRK 365 million thanks to changes to collective agreements in the public sector, but added that this was not enough.
VAT revenue in the first half of the year rose 7.5%, as a result of introducing a five-percent rate instead of a zero rate, while profit tax revenue dropped 34%, by HRK 1.4 billion, because entrepreneurs are exempt from paying tax on reinvested profit. Income tax revenue grew 3%.
Linic said the increase in expenditures was due to the fact that the government was not sweeping the deficits under the carpet but clearly presenting them and fighting against them.
He announced for the next government session a bill of amendments to the law on fiscal responsibility aimed at changing the current fiscal rule, because in the current unfavourable economic trends, the rule, as now defined, endangers growth prospects. Linic said the amendments would acknowledge the existence of economic cycles.
(EUR 1 = HRK 7.5)