Subsidies and fiscal bonuses for rising energy prices and inflation

In light of the end of COVID-19 and the lowering of inflationary pressure, the Government, at its session on 5 September 2024, announced the gradual reduction and eventual abolition of subsidies for energy products. Due to the new measures, electricity and gas prices will increase by 10-15 percent. Subsidies will be reduced gradually, in such a way as to ensure that prices rise, but not by more than 30 percent, so as not to cause chaos in the market. A significant increase in electricity and gas prices could result in heightened inflationary pressures, and would probably threaten the standard of living for citizens.

More than 800,000 pensioners in Croatia are receiving new financial aid. As a part of the new aid measures, the Government is giving a new one-time supplement to those with a pension of up to EUR 880. The trade union warns that this is too little. Just before the elections, a new package of assistance to citizens will arrive. The government presented it and it will be effective from 1 April 2024. The government states that it has a unique goal, to protect pensioners against the impact of inflation. Those with the lowest pensions of up to EUR 320 will receive EUR 160. Those with pensions between EUR 320 and 460 will receive EUR 120, and those with pensions between EUR 460 and 600 can count on a supplement of EUR 80. Those with a pension between EUR 600 and 730 will receive slightly less, EUR 60, and those with a pension from EUR 730 to 880 will receive EUR 10.

The Ministry of Finance submitted a proposal for changes to the Value Added Tax Act to the public consultation. With these changes, it is planned to extend for one more year the application of the reduced VAT rate of five percent for the supply of natural gas, heating through thermal stations and for firewood, briquettes, pellets and wood chips. According to these changes, the measures would be valid until 31 March 2025. The lower VAT rate would continue to be applied to fees related to the delivery of natural gas and thermal energy, but also to fees in the purchase and sale of heating products. The public has been talking for some time about whether the state will abolish energy subsidies for citizens and some businesses. Namely, a clear signal came from Brussels to all members of the European Union to reduce subsidizing energy prices and limit it only to the most economically vulnerable parts of the population. However, as many as three election cycles await Croatia this year, which is why experts believe that the measures could remain in force for some time, even though the current decisions are valid until 31 March. This proposed change supports that. The Ministry of Finance stated that the measures will affect the state budget, predicting that VAT revenues will be lower by EUR 46 million per year. The proposal to amend the VAT Act is on public consultation until 25 March 2024.

The Croatian Government on 14 September 2023 announced its decision to provide financial aid to all unemployed persons registered at the Croatian Employment Service. The aid in the amount €100 is planned to be paid out in October 2023. This aid is not deemed as income and it is tax exempted. Furthermore, it cannot be forfeited due to private bankruptcy or debts. Financial resources for the implementation of this measure will be provided in the state budget of the Republic of Croatia

The Croatian Government on 14 September 2023 announced its decision to provide financial aid to beneficiaries in social welfare rights, in the pension system and the care system for Croatian veterans from the Homeland War. The goal of the measure is to mitigate the consequences of the increase in the cost of living and energy. The one-time cash payment will be paid: a) to the beneficiary of the right to compensation for an endangered energy buyer who is the beneficiary in the period from 1st August to 31st August 2023; b) to the beneficiary of allowance for assistance and care in the social welfare system who is recipient in the same period; and c) the recipient of the guaranteed minimum benefit in the same period, but he or she is not the beneficiary of the right to compensation for an endangered energy buyer. The one-time financial aid will be paid to the beneficiary of the right to a supplement for assistance and care realized in the pension system, and to Croatian war veterans. The aid in the amount € 150 is planned to be paid out in October 2023. This aid is not deemed as income and it is tax exempted. Furthermore, it cannot be forfeited due to private bankruptcy or debts. Financial resources for the implementation of this measure will be provided in the state budget of the Republic of Croatia

The Croatian Government on 14 September 2023 announced its decision to provide financial aid to pensioners due the price increase. The goal of the measure is to lessen the consequences of the increase in the cost of living and energy. The one-time cash payment will be paid: a) in amount €160 to pensioners which receive pension up to €300, b) in amount €120 to pensioners which receive pension from €300.01 to 435.00) in amount €80 to pensioners which receive pension from € 435.01 to 570.00; and d) in amount € 60 to pensioners which receive pension from € 570.01 to 700. The aid is planned to be paid out in October 2023. This aid is not deemed as income and it is tax exempted. Furthermore, it cannot be forfeited due to private bankruptcy or debts. Financial resources for the implementation of this measure will be provided in the state budget of the Republic of Croatia

The Croatian Government on 14 September 2023 announced its decision to provide a one-time cash payment to children's allowance beneficiaries in order to mitigate the consequences of the increase in energy prices. The one-time cash payment will be paid: a) in amount €50 for 1 child, b) in amount €100 for 2 children, c) in amount €150 for 3 children; d) in amount €200 for 4 children, and e) in amount €300 for 5 and more children. The aid is planned to be paid out in October 2023. This aid is not deemed as income and it is tax exempted. Furthermore, it cannot be forfeited due to private bankruptcy or debts. Financial resources for the implementation of this measure will be provided in the state budget of the Republic of Croatia.

The Croatian Pension Insurance Institute announced the payment of one-time cash benefits to pensioners in order to mitigate the consequences of the rising cost of living. 49,241 persons who receive a part of their pension from abroad received a one-time cash payment, and for this payment €4,6 million has been provided from the state budget. For almost 8,000 pensioners with a pension below €260, €160 were paid in the total amount €1,3 million. For 8,208 pensioners with a pension in a scope from € 260 to 330, € 120 was paid once which was € 985 thousand in total. For 19,239 pensioners with a pension in the amount from € 330 to 470, € 80 was paid-out, while for those with a pension between €470-610, a benefit was € 60. Such payment is the implementation of the Governments’ Decision on the payment of a one-time cash payment to pension beneficiaries in order to mitigate the consequences of the increase in the cost of living from 16 March 2023. Financial resources for the implementation of this measure will be provided in the state budget of the Republic of Croatia.

The new measures are grouped into three main areas, intended to offset the rising cost of energy and record-high inflation, plus a new set of subsidies and incentives. The Government will continue regulating the prices of natural gas – widely used for heating – as well as electricity prices, until at least the end of September 2023. Some fuel costs will also continue to be subsidized. The Government listed the vulnerable groups which will be covered by this latest set of measures. These include retirees receiving state pensions in an amount less than €610 per month, everyone receiving child payments, the unemployed, veterans of the War of independence 1991-1995, fishermen, farmers, and the transport sector. Subsidies will also be provided for investments aimed at improving energy efficiency. Some 128,000 families and 230,000 children would be entitled to higher child payment claims – from €45 per month given to families with a single child, up to €160 for families with five children or more. In February, September, and December 2022 Government rolled out a series of measures designed to tackle the cost-of-living crisis, totalling some €3.5 billion. These included a mix of tax breaks, increased social benefit payments, and subsidies for energy and fuel costs. The latest set of measures was also eagerly awaited by local governments throughout the country, as the cost of energy has become a serious burden for their budgets, and lifting the price caps originally imposed in 2022 would have presented a serious risk to their self-sufficiency. The measures will be implemented from 1 April 2023.

As a measure to lessen the consequences of inflation and energy price growths, the Government on its meeting on 22 December 2022, decided on another aid package that would help the most financially vulnerable citizens. The measures include pensioners with the lowest pensions, people with disabilities, the unemployed, all recipients of the social assistance and child allowance, what is a total of about one million of citizens. For this purpose, the state will allocate a little more than HRK 700 million (€93 million). Pensioners with a pension of up to HRK 4,360 (€579) will receive a one-time financial aid, and depending on the amount of the pension, the supplement amounts to HRK 400 (€53) to HRK 1,200 (€159), while those with the smallest pensions will receive up to HRK 1,850 (€246). Recipients of the social assistance will receive HRK 1,000 (€133). One-time aid to beneficiaries of the child allowance, depending on the number of children, amounts from HRK 300 (€40) to HRK 1,100 (€146). The victims of the earthquake who are still in temporary accommodation, will receive in amount HRK 2,000 (€266) per person, and a maximum of 10,000 (€1,328) per one household.

In Croatia as a form of social aid exists Compensation for an endangered buyer of energy products (Naknada za ugrozenog kupca energenata). It is granted to a single person or a household which, due to meeting extraordinary living expenses caused by current life circumstances (birth or education of a child, illness or death of a family member, natural disasters, etc.) is unable to meet basic life needs. It can also be recognized:

1. for the purchase of basic items in the household or for the purchase of necessary clothes or shoes if the purchase cannot be provided through humanitarian organizations
2. for a child or a younger adult beneficiary of the service of accommodation in a foster family for the purchase of compulsory school textbooks
3. to the user of the accommodation service in crisis situations for reimbursement of the costs of transportation to other places of residence, own or foster family, social care home, with another service provider.
4. to the user of the accommodation or organized housing service in the case of a current need that cannot be met within the framework of the accommodation or organized housing service. The government decided that its monthly value during the period from 1 October 2022 to 31 March 2023 will be HRK 500 (€66.4) instead of regular HRK 200 (€26.5) or increase amount for 2022 HRK 400 (€53.1).