ECONOMY

Croat business tasks

ZAGREB – Croatia must cut the tax burden for businesses, restructure its industry and make the labor market more flexible if it wants to prosper in the European Union, a top local business leader said yesterday. The former Yugoslav republic hopes to join the EU around the end of the decade, but analysts have said that it needs faster structural reforms, a more efficient judiciary and severe reduction in red tape to avoid a post-accession shock. «Croatia will take little advantage of the common market unless it undertakes reforms necessary to prepare its economy for strong competition,» Damir Kustrak, head of the Croatian Employers’ Association (HUP), told Reuters in an interview. HUP and trade unions regularly engage in social dialogue with the government aimed at seeking ways to improve the country’s economic performance and living standards. «Croatia’s previous governments had more pressing priorities like the war, the postwar reconstruction, development of democratic standards and charting the EU course. Now it’s about time to fully tackle the issues of better business climate and living standards,» Kustrak said. Croatia faces a general election on November 25. Recent opinion polls gave the opposition Social Democrats a slight edge over the ruling conservative HDZ, which is perceived as slightly more pro-business. According to a recent World Bank report, Croatia was the leading reformist country in post-communist Europe last year, but its business climate is still lagging behind. High public costs Isaac Sheps, the CEO of Danish brewery Carlsberg’s unit for Southeast Europe, agreed there was still too much red tape and the judicial system was not efficient enough. «Procedures, like customs clearances, take too much time. Also, investors need to be able to rely more on the judicial system,» he told Reuters recently. Carlsberg is one of the few foreign firms that made a major greenfield investment in Croatia, which missed Eastern Europe’s main investment boom during its 1991-1995 war of independence. Kustrak said the state should reduce its strong role in the economy and grant special benefits to those who invest in modern technologies, instead of providing subsidies to dated and loss-making socialist-era industries. «Also, we see gross salaries rising faster than net salaries recently, which means tax burden on businesses is still high. We need the opposite, lower contributions (from employers), so that labor costs rise more slowly than net salaries,» he said. Kustrak, who was a deputy finance minister in the previous government, said Croatia’s public spending has for years been around 50 percent of gross domestic product and its reduction was «indispensable for steady and healthy economic growth.» «In addition, our labor laws are too rigid, unemployment is high and workforce mobility is low. Employment and layoffs should be made easier, and people will be able to find jobs more easily in a booming business environment,» Kustrak said. Carlsberg’s Sheps said the government should also step up its privatization drive as having too many state-owned companies was distorting competition. «The state should keep only the really strategic assets,» he said.