Croatia: Developments in working life – Q1 2016
The election of Croatia’s new Prime Minister and government, and serious challenges to public finance over public-sector wages 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 2016.
Social partners welcome new Prime Minister
On 22 January 2015, the Croatian Parliament elected Tihomir Oreskovic as Prime Minister. A businessman raised in Canada, his appointment was welcomed both by the business community and by the trade unions, who had complained about their poor relationship with the previous government. Oreskovic’s key priorities are to reform the public sector, stabilise the budget deficit, and boost foreign investment and viable business opportunities to stimulate growth and employment. Trade unions expect cooperation, tripartite social dialogue, and swift and efficient problem-solving, while the Croatian Employers’ Association (HUP) has proposed a significant number of short-term and long-term measures for economic recovery and how to improve the investment climate in Croatia.
Croatia's Economic and Social Council is also expected to start working soon. HUP sees this as a positive sign of reform and of changes it has sought in legislation, in the areas of:
- fiscal consolidation;
- controlling the deficit;
- reducing public debt;
- the speedy activation of dormant capital;
- the privatisation of state-owned companies.
Negotiations over public-sector salary increases
Negotiations have taken place between the government and the public and government service unions regarding union demands for payment of salary bonuses of 4%, 8% and 10% (increment based on years of service). Also on the negotiating table are salary increases and changes to collective agreements. Negotiating committees from the government and unions will discuss the provision of a 2009 agreement that basic salary would increase by 6% in the event of GDP growth of 2% or greater in two consecutive quarters. These conditions were fulfilled on 1 January 2016.
The government does not deny that the trade unions are entitled to the increase; however, it would cost an annual HRK 1.8 billion (€239 million as at 14 April 2016). These funds have not been included in the 2016 budget and have not been foreseen in the budget projections for 2017 and 2018. The trade unions have stated that they will not give up their demands for an increase though they will agree to a short delay in implementation of the agreement if, during negotiations, the government supports its case with appropriate arguments. Heading the government’s negotiating committee, Deputy Prime Minister Božo Petrov expressed his hope that a compromise would be achieved because everyone was aware ‘of the situation in which we find ourselves’.
To address issues of corruption and attract new investment, Croatia needs to overhaul its legal system and its system of local government. Furthermore, to give greater support to domestic businesses, the country needs to reduce administrative overheads and make the public administration more efficient. Measures could include cutting taxes (particularly on labour), reducing parafiscal levies (which are a considerable burden on businesses), and the large number of laws, regulations and provisions that make it difficult to start and operate a business in Croatia.