Croatia: Latest working life developments – Q1 2017

Optimism regarding the economy, implementation of reforms to simplify and stabilise the tax system, and new active labour market policy measures to help the most vulnerable groups are the main topics of interest in this article. This country update reports on the latest developments in working life in Croatia in the first quarter of 2017.

Optimism linked to GDP growth and reduction in overall tax burden

Croatia’s gross domestic product (GDP) grew by 2.9% in 2016, the highest growth rate since 2007. Throughout the whole of 2016, private consumption increased by 3.3%, confirming the recovery in domestic demand already observed in 2015. Consumer optimism has increased due to a brighter economic climate and the government expects this recovery to continue, projecting a real growth in GDP for 2017 of around 3.3%.

As mentioned in the previous quarter's country update, the deal made between the Trade Union of State and Local Government Employees of Croatia (SDLSN) and the government in December 2016 included public sector wage rises of 2% in January, August and November 2017. This wage increase had been agreed on the basis of the economy picking up and had not been factored into the budget. The better-than-expected revenue collection may prevent the deficit from increasing but risks remain.

The tax reform implemented at the beginning of 2017 is intended to achieve the following:

  • lower the overall tax burden and enhance the economy’s competitiveness
  • make the tax system more socially just, stable, sustainable and simple
  • simplify the work of the tax administration and make it more efficient
  • improve the transparency of rules for taxpayers.

The Institute for Promotion of Safety at Work launched a national campaign, ‘Stop accidents at work 2016–2018’. The goal is to slash the number of accidents and improve health and safety at work. Various documents on the collection and processing of relevant data have been prepared, such as a guide to the analysis of injuries at work, in order to determine what measures need to be implemented. The institute aims to develop and adopt an action plan specifying objectives, responsible stakeholders (particularly authorised institutions, employers and workers) and implementation deadlines.

New package of active labour market measures

At the beginning of 2017, the Ministry of Labour and Pensions launched a set of active labour market policy (ALMP) measures called ‘From measure to career’, effective from March 2017. This new set of measures replaces 41 previous measures, with the government introducing 9 broad measures that should be more flexible and adjusted to a larger number of unemployed people, particularly the long-term unemployed, people with disabilities, and young people. Out of the HRK 1.5 billion budget (€0.2 billion as at 11 April 2017) almost one-half has been secured from the European Social Fund. Around 50% of all ALMP expenditure is earmarked for professional training for young people aged up to 29 years without relevant work experience. This measure has been extended to all secondary and higher education graduates. During 2016 alone, there were almost 71,000 participants in different ALMP programmes, with almost 50% of them in professional training for work without employment. The ALMP programmes should further alleviate pressures on the labour market. However, it is also possible that these programmes can crowd out regular employment, and thus bring only a temporary relief on the labour market.

Commentary

Future debate will probably focus on the unresolved issue of pay levels in the public sector and the government’s wish to improve its efficiency. Another important issue is related to the labour shortages in some sectors, which can be a serious hindrance to economic recovery and sustainable GDP growth. This applies to both low-skilled and high-skilled jobs, mainly in shipbuilding, construction, and information and communication technology (ICT), but also in hospitality and catering activities.

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