STATE ASSETS: A Closer Look at Recent Business Sector Restructuring

In 2012, the new Croatian government, led by Prime Minister Zoran Milanovic (SDP) and Finance Minister Slavko Linic (SDP), has implemented numerous legislative and regulatory changes to the economy, mostly focusing on tax reform, reducing some tax burdens towards business, but mostly increasing the overall tax burden, and fiscal consolidation.  The economic recession that has affected the Croatian economy since 2009 has disclosed the fundamental and systematic deficiencies within the economy, such as rampant illiquidity, lack of tax obligation discipline, political and personal favouritism, large local, regional and national bureaucracies, etc.  Given these problems, tax discipline and fiscal consolidation is a welcome change and is generally supported by the business community.  However, these welcome changes have also come with an increased total tax burden (e.g. PDV increase to 25%, energy sector business fee to Centre for Energy & Investments, etc.) and increased fuel prices.  The various legislative and regulatory changes have also included measures imposing stricter regulatory supervision, requiring businesses fulfil their financial obligations towards creditors, the state and employees; this requirement for fiscal discipline also includes mechanisms for the state to intervene in businesses that are having financial difficulties by transforming state debts into ownership shares.  The model is for the state to intervene into troubling businesses, restructure the business and resell.  In principle, in free market economies, state intervention is always a concern, but this sort of intervention is not unheard of during economic downturns.  However, there does not appear to be any trend towards the last step in the model, meaning in the step of working towards reselling commercial enterprises after they are bailed out.  On the contrary, there appears to be a trend towards the slippery slope of the state re-entering the commercial free market, as during the old socialist Yugoslavia.

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