Curtailing of Social Benefits

AIM Zagreb, August 5, 2001

Recently Racan's Government announced a set of measures that could be the death of a greater part of the Croatian population this fall. They concern a comprehensive, extensive and the most radical cutting of social benefits. In case this idea is accepted in its present form, as part of the “rationalisation of social expenditures”, the Government will impose taxes on the so-called privileged pensions for all pensioners who receive more than 1,680 kunas, i.e. DM 450. This would consequently reduce their pensions by some 10 percent. These relates to pensions of Parliament members, officials, veterans and similar. Also, this tax would be payable by all pensioners whose pensions are higher than average wages in Croatia.

>From the current 1,680 kunas payable during the entire maternity leave, maternity benefits would be reduced so that new mothers would get the full amount just in the first six months of their leave and in the remaining six months only 900 kunas. For leaves over one year long, maternity benefits would not be paid. Since, according to journalists' calculations, a baby costs over 2,400 kunas a month it is fairly clear that the current emoluments are far from enough. Child's allowances would also be reduced for certain categories of beneficiaries.

The Government still doesn't have a clear idea where and how to cut child's allowances, but presented an example according to which over 50 thousand veterans' children in Croatia receive ten to twenty percent higher allowances than other beneficiaries, although their parents have high, for Croatian circumstances even astronomic incomes – between 10 and 20 thousand kunas. The amount of child's allowances would be determined according to the number of children and total family income. Allowances for civilian victims of World War II, victims of the Homeland War and first class Croatian war invalids would also be cut.

Croatian veterans' allowances for some categories might be next for reduction. Although these are just some ideas, whose implementation might differ from the above presented scenario, the Government has already announced that it will start implementing some of these measures (such as taxation of pensions) already this year, while other planned cuts would be realised at the beginning of next year.

According to the Government, this rationalisation is just “phase zero in the reform of social welfare which is intended to restore the confidence of citizens and make them take care of themselves”. According to these sources the basic aim of this reform is not to save funds, but to re-channel aid from a large undeserving privileged group of beneficiaries to those who truly need that aid in order to survive.

This would prevent some citizens who have as much as 20 thousand kunas a month, to receive up to 34 additional allowances, in other words to live off the state better than small-size entrepreneurs in some rich West-European countries. Pensioners will represent the most important element of this rationalisation – who get 51 percent of social welfare funds, with much less being allocated for other items, such as health care (32 percent). As was to be expected, the public angrily reacted to this idea.

President of the Independent Croatian Trade Unions, Kresimir Sever said that with the latest price increases and curtailing of social benefits the Government was unconditionally meeting the requests of the International Monetary Fund and the World Bank, thus making Croatia a protectorate of the international community. This trade-union activist made a number of additional claims, which most of his colleagues seem to share today. According to Sever, the Government is actually incapable of finding concrete solutions for pulling the Croatian economy out of the crisis so that - buying time – it is intentionally insisting on some other problems, such as relations with the Hague Tribunal, thus diverting attention from the survival issue.

According to him, the Government is fishing in muddy waters. For example, it recently sold 16 percent of shares in the Croatian Telecom to German partners (“Deutsche Telecom”) in order to replenish the state budget. In return, it forgave the Germans the drastic increase of prices of telephone services thanks to which the Germans will get back all their investments in Croatia in the shortest possible time.

The reasoning of trade unions in not totally ungrounded. However, the fact remains that Racan's Government still has cover for some of its moves. For example, on the initiative of the Croatian Democratic union – as part of a broad election campaign - the HDZ Parliament passed the Law on Maternity Allowances wanting to show the generous social sensitivity of Tudjman's party. However, when they put on paper how much that would all cost, the HDZ officials concluded that the implementation of this law was unfeasible because its elements were utopian already then. According to some Ministers, the new Government rather recklessly, and even foolishly, started implementing it in practice, irrespective of the price. However, these benefits had to be reduced to realistic frameworks. Privileged pensions are not a remnant of the HDZ's times, they existed even during socialism, but metastasised under Tudjman. Tudjman was well aware what he was doing. He was buying the support of the broadest masses, by heavily borrowing all over the world and selling the national treasures for a pittance, which mostly made it possible for him to rule during the previous decade. However, during that time Croatia's external debt reached the amount of USD 11 billion. Someone had to put a stop to it as it could simply not go on.

Thus, the former communist Racan was left with a slightly paradoxical task: to remove all social-parasitic elements from Tudjman's ideology, which has infected the entire society (although its foundations have been laid much earlier). For, the Croatian citizens are not used to living in liberal capitalism and the scope of social benefits is still extremely broad.

The well-meant Government's critics do not question these moves, but think that they have come too late. Namely, already at the beginning of its mandate – when it enjoyed the strongest citizens' support - the Government should have said that some rights which the citizens inherited from the HDZ, were inviolable.

In this way, the reduction of privileges will occur at an extremely sensitive political moment when Croatia is facing new indictments from the Hague, which according to some views, could easily bring down the Government. On the other hand, along with higher phone rates, the prices of gas will also go up for 10 percent, after which milk prices will follow with 15 percent increase, as well as prices of medicines (up to 120 percent) and school textbooks. The employment has stopped at the figure of 360 thousand and is record high for countries in transition. Also, by all appearances the tourist season will fall short of expectations, primarily because of the over-valued kuna exchange rate and high prices of extra services. Nevertheless, according to estimates of the International Monetary Fund, even after this rationalisation public spending will be too high in relation to possibilities and the growth of social product (from four to five percent) insufficient to cover the expenditures.

Also, Racan's Cabinet never showed clearly that it was keeping its pre-election promises. Everything it does boils down to restrictions, limitations and sale of national wealth. This drives the nation to despair so that it is clear that – as every previous year – the coming fall will be hot even without heating. If, on top of it, new indictments from the Hague arrive, the mission of the first post-Tudjman Croatian Government will truly be impossible.

Boris Raseta (AIM)