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Croatia unveils €640 million support package to help with energy price rises

Christian Fernsby |
The Croatian government launched an 4.8 billion kunas (€640 million) package of measures aimed at protect consumers from rising energy prices.

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The package includes the capping of the growth of electricity prices to 9.6% and the growth in prices of gas to 20%. Furthermore, the Value Added Tax (VAT) rate on gas supplies and some agricultural products will be lowered. The package also provides a rebate on domestic energy bills.

Unveiling the set of measures, Prime Minister Andrej Plenković said today that the package had been prepared in a systematic manner, and is "timely and all-encompassing".

The package contains the measures targeting households, businesses and agricultural producers, Plenković said adding that the state-run Croatian power provider HEP will also bear a part of the burden to address the rising electricity prices.

The measures encompass tax reduction, subsidies for citizens at risk of energy poverty, and one-off discounts on energy bills for pension recipients, while businesses, farms and fisheries will be entitled to subsidies to cope with the rising energy costs.

The caps on the rise in prices of electricity will make HRK 460 million disposable to households. The subsidies for households using gas will include HRK 0.10 per kilowatt-hour.

The support will be provided to micro businesses and SMEs with the average annual consumption of gas up to 10 gigawatt-hour, and the discount will be HRK 0.15 per kWh.

The VAT rate on gas and heating energy will be lowered from 25% to 13%, the same VAT already applied on power. The lower VAT is a permanent measure.

VAT will additionally be reduced to 5% on gas as a temporary measure, in place from 1 April 2022 to 31 March 2023.

The VAT rates of 13% will be reduced to 5% for fresh meat, fish, eggs, fruits, vegetables, cooking oils, and baby food and the the standard 25% VAT rate will be slashed to 5% on some items in the agricultural production (fertilisers, plants etc.).

The package aimed at tackling rising costs of living also includes the reduction of the 25% VAT to 13% on feminine hygiene products, such as tampons and sanitary towels.

The coupons for electricity bills for senior citizens at risk of poverty will increase from 200 to 400 kuna a month and will now also be applicable to gas bills.

Pensioners whose monthly income is up to HRK 4,000 will be also entitled to payments between HRK 400 and 1,200 under the the energy support scheme.

When asked by a journalist how it will be ensured that a reduction in VAT also leads to a reduction in prices, Minister of Finance Zdravko Marić said: "We have repeatedly experienced that lowering VAT does not have to coincide with lowering product prices. We are aware of these circumstances and the fact that we are a market economy. We want the VAT rate to be reflected in the price. We held meetings with social partners, unions and representatives of pensioners. Everyone expressed a question similar to yours, that this reduction in VAT be translated into a reduction in prices. I think everyone recognizes our intention."

Croatia's largest supermarket chain Konzum already announced that it will lover some prices according to the newly presented government's measures.

What happens when purchasing power is low? Are wages rising because foreign owners earn more? What happens to workers when people spend less? What do manufacturers do when their products are in less demand? Croatian tresury highly depends on personal spending. It is to be seen how the market will react to new measures and will other expenses, such as constantly rising input prices for businesses, allow companies to lower their prices.


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