Policy Documentation Center

Siarhei, Bohdan

\u201cPerhaps we will abandon the Iranians for the benefit of the Chinese.\u201d A case study on the Belarusian relations in 1993-2012

\u141ada, Agnieszka

Fa\u142kowska-Warska, Ma\u142gorzata

European politics online. The case of the Polish Members of European Parliament

Antal, Judit et al.

MNB Quarterly report on inflation - December 2012

English

Attitude radicals in Hungary- in international context

MNB Quarterly report on inflation - June 2012

Krusper, Balazs

MNB Working Papers 5. The role of external and country specific factors in Hungarian inflation developments

Ott, Katarina

 1          PRESS RELEASE     l     No. 42     l     Institute of Public Finance     l     ISSN: 1848-4085     l     doi: 10.3326/pr.2012.42 
The Revision of the 2012 Croatian central 
government budget: unrealistic planning of 
the budget and/or incapacity to implement 
what has been planned 
 
 
KATARINA OTT, PHD, Institute of Public Finance, Zagreb 
 
 
It was on the very date that according to the Budget Law it was supposed to define and send to the 
Parliament the Budget Proposal for 2013-2015, November 15, that the Government actually presented 
its Proposal for Amendments to the State Budget of the Republic of Croatia for 20121 (i.e. a revision of 
the budget). Since this Proposal was announced just a few days before, the Government left the public, 
and itself, no time to analyse the revision or to draw the essential conclusions that could be factored 
into the planning of budgets for the forthcoming years. This is just a continuation of the practice of 
belatedness practised to date2 for the Strategies of the Government’s Programmes were two months 
late, and the Guidelines for Economic and Fiscal Policy a month and a half. But the budget calendar is 
laid down by the Budget Law precisely so that there should be enough time for analysis, debate and 
the adoption of the best choices for the future fiscal policy of the state.  
 
No date for the publication of revisions of the Budget is given, because they only ever arrive if during 
the course of the budgetary year it is established that budgetary revenues have been estimated 
unrealistically or if unforeseen expenditures have arisen. They can be caused by unforeseen 
circumstances in the local or world economy, but can also be the consequence of the Government’s 
incapacity realistically to plan revenues and expenditures. Although revisions should occur only in 
extraordinary circumstances (for example, Ireland, in the 1996-2010 period, had only one revision of 
the budget, and that was in the crisis year of 2009), but in Croatia they are a regular phenomenon, and 
previous governments had budgetary revisions as many as 14 times in a period of 11 years.3 
 
Since this revision has not been brought about by a shortfall in revenues but by exceeding the planned 
expenditure, this article will deal exclusively with the increases in expenditures displayed. 
 
Government revenues consist of operating expenditures and expenditures for the acquisition of non-
financial assets. In the Revision, operating expenditures have been enlarged by 1.9 billion kuna (1.1 billion 
for employees, 458.3 million for payments to individuals and households, 415.8 million for financial
                                                          
1 Government of RC., 2012. Draft Proposal for Amendments to the Government Budget of the Republic of Croatia for 2012. 61st session 
of the Government, November 15, 2012. 
2 Ott, K. 2012. “Overview of the Guidelines of Economic and Fiscal Policy for the period 2013-2015”. Press Releases, No. 40, 
September 3, 2012. Zagreb, Institute of Public Finance. 
3 Beš, D. and Ott, K., 2012. “A short history of revisions of the Croatian government budget 1999-2009”. Newsletter, No. 50, 
August 2010. Zagreb, Institute of Public Finance. 
No. 42 Zagreb December 5, 2012 
 11          PRESS RELEASE     l     No. 42     l     Institute of Public Finance 
 expenditures, and 379.78 million for subsidies).4 Expenditures for the acquisition of non-financial assets 
were reduced by 424 million. What is demonstrated by the differences between the amounts planned at 
the end of February and those shown now in November, in a period of less than nine months? 
 
We shall leave the greatest increase in expenditures – for employees – until the end, and set off from 
expenditures for the acquisition of non-financial assets, which were considerably reduced. Although fiscal 
consolidation implies reduction of expenditure, it is not good if it is above all of expenditure for the 
acquisition of non-financial assets that is cut. This means that the investment projects upon which 
the Government founds its plan for recovery are simply not being implemented. The explanation 
according to which “not even a single investment project is being relinquished, rather, for some of the 
planned projects the preparation of the tender documentation is taking a bit longer”, indicates 
unrealistic planning of the time needed for the preparation of projects, and accordingly unrealistic 
initial planning of the budget. 
 
Subsidies to public sector companies were reduced negligibly (less than 1%), but as if to compensate 
they were considerably increased to corporates, farmers and self-employed outside the public sector. 
Almost 60% of this increase relates to shipbuilding, about 30% to incentivising farm production and 
market interventions and the rest, for example, to the active employment policy, the processing 
industry, tourism, traditional artisan crafts, education for enterprise and self-employed persons, 
women’s entrepreneurship. Most of the enlargement is explained by aid “in the Split shipyard 
restructuring procedure in line with the Draft contract on the sale and transfer of shares of Split 
shipbuilding industry and DIV shipbuilding”. But even if we ignore the level of realism implicit in this 
kind of sale and how remunerative it is, because of the inadequate information about the negotiation 
procedures the question arises of whether this is not just another indicator of unrealistic planning 
capacity of the Government for the handling of such major undertakings and accordingly for the 
planning of the budget? The shipbuilding story, unfortunately, is not over; it will cost us a lot in future 
budgets, and it is to be hoped that the entry of Croatia into the EU will lead to an outcome, and that 
shipbuilding, at least in the future, will not be one of the main causes of budget revisions. 
 
Financial expenditures relate to “interest that is rising primarily because of the half-yearly payment of 
interest on bonds issued this year and obligations for the loans to shipyards that have been assumed”. 
Since the Government assumed the liabilities of the shipyards in April5 and took the decision to issue 
bonds in the first half of the year6 , how is it that it did not notice earlier on the inevitability of these 
additional expenditures? 
 
The rise in payments to individuals and households is primarily caused by an increase in expenditures 
for employees in healthcare establishments (by as much as 510.4 million kuna). But why are these 
expenditures (and which establishments and which employees are concerned?) placed among 
payments to individuals and households pursuant to insurance and other payments, and not in 
expenditure for employees (position 37 instead of 31)? If these two amounts were shown in the same 
place, expenditure for employees would have risen by 1.6 billion and not 1.1 billion. Why is a distorted 
picture of the real purpose of individual expenditures being created?7 
 
Expenditures for employees consist of gross wages, other expenditures for employees and employers’ 
contributions. Since gross pay determines employers’ contributions, and quite a lot of other 
expenditures for employees, and since expenditures for gross wages contributed most to the rise in 
total expenditures of the government budget (837.5 million kuna expenditure for gross pay amounts 
to 86% of expenditures for employees and 44% of overall operating expenditures), it is worth looking 
at them in greater detail. 
 
                                                          
4 The aggregate of all increased operating expenditure is greater than the total enlargement of these expenditures, because at 
the same time material expenditures, aid given to other countries and within the general budget, and other expenditures, were 
reduced by 450 million kuna.  
5 Government Republic of Croatia, News and announcements. The Government assumed the credit liabilities of 3 maj, 
Brodotrogir and Brodosplit, April 5, 2012. 
6 Government Republic of Croatia, Conference call session of the Government Republic of Croatia, April 25, 2012 
7 Bronić, M., 2012. “Revision of the government budget for 2012: why are the expenditures of the government budget rising?”. 
Press Releases, No. 43, November 19, 2012. Zagreb: Institute of Public Finance. 
 111          PRESS RELEASE     l     No. 42     l     Institute of Public Finance 
Graph: Increase in expenditures for gross wages of employees in the Revision of the Budget for 
2012, in millions of kuna*  
 
Source: Government of the Republic of Croatia 
* only budget position 311 
 
 It is easy to conclude that over 45% of the growth in expenditures for gross wages relates to education 
(primary, secondary and tertiary), and almost 40% to various forms of security and protection (above 
all, the police). The remaining 15% relates primarily to the Croatian Institute for Health Insurance, the 
Ministry of Agriculture, the government administrative offices in the counties, the Employment 
Agency and the Croatian Retirement Insurance Institute, but many much smaller beneficiaries also 
take part (for example, the Croatian National Theatre in Zagreb increased its wage bill by 2.3 million 
kuna). Once again it is worth pointing out that the graph refers only to the 837.5 million kuna rise in 
expenditures for gross wages of employees (position 311) and excludes expenditures for health care 
employees, which are entered under payments to individuals and households pursuant to insurance 
and other payments (position 37). A proper recording of all items in the budget, including these, would 
give a different picture; but that is not possible to read from this documents.8  
 
Since in nine months – the time that elapsed from the adoption of this year’s budget to its being 
revised – there were no unforeseen circumstances in either the local or the world economy, why did 
the Government plan its revenues and expenditures so unrealistically? Unreal planning of revenues 
and expenditures led inevitably to considerable differences in the financing account. Apart from that, 
the government will this year not be able to realise the 2 billion kuna receipts from the sale of stocks 
and shares in the principal of credit and other financial institutions in the public sector. Although 
there is no explanation for this failure in planning, it can be assumed that it concerns the planned but 
not effectuated sales of Croatia Insurance Company and the Croatian Postal Bank. But then, by issuing 
bonds, the government took on as much as 3.7 billion more debt than had been planned. 
                                                          
8 It is worth pointing out for the umpteenth time that coping with the budgetary documents would be considerably facilitated if 
they were released on the Government’s Web site in excel and not in pdf. Since the Finance Ministry certainly produces them 
in excel, is the Government just providing them to the citizens in pdf, or is it getting them itself in this form? 
Ministry of Justice - 
various kinds of court, 
prosecution of 
perpetrators of criminal 
and other punishable 
offences and protection of 
property, prevention of 
corruption and organised 
crime (94) 
Ministry of Defence - 
functioning of the armed 
forces (46.8) 
Ministry of Interior - 
public order, safety and 
administrative affairs 
(140.6) 
Ministry of Interior - 
administration and 
governance of the state 
borders system (43.8) 
Ministry of Education - 
elementary school 
education (150) 
Ministry of Education - 
secondary school 
education (102) 
Ministry of Education - 
seven universities, half 
going to Zagreb University 
(128) 
All others (132.3) 
 1v          PRESS RELEASE     l     No. 42     l     Institute of Public Finance 
It is a huge pity that because of the unrealistic planning of the budget and/or incapacity to implement 
what has been planned, yet another year has been lost. And this was the first year in office, which is 
considered for every government the most favourable for implementation of any kind of measures, 
particularly of the unpleasant kind. In this way, alas, too little has been done significantly to repair 
public finances.  
 


Press release no. 42. The revision of the 2012 Croatian central government budget: unrealistic planning of the budget and/or incapacity to implement what has been planned

Simon, Andras (Publisher in charge)

MNB Report on financial stability - April 2012

Faykiss, Peter et al.

MNB Bulletin - February 2012

International Institute for Middle East and Balkan Studies, IFIMES

  
 
1 
The International Institute for Middle-East and Balkan Studies (IFIMES) in 
Ljubljana, Slovenia, regularly analyses events in the Middle East and the Balkans. 
IFIMES has analysed current events in Serbia in view of the second round of early 
presidential election scheduled for 20 May 2012. The most interesting sections from 
the analysis entitled “SERBIA: MILOŠEVIĆ'S PEOPLE DECIDE ABOUT THE 
FUTURE OF SERBIA” are published below. 
MILOŠEVIĆ’S PEOPLE DECIDE ABOUT THE FUTURE 
OF SERBIA  
SERBIA: 
 
 
The first round of presidential election in Serbia took place on 6 May 2012. The 
largest amount of votes went to Boris Tadić (25,33%) from the coalition “For a 
better life – Boris Tadić” and Tomislav Nikolić (24,99%) from the coalition “Let’s 
move Serbia – Tomislav Nikolić”. 
 
The majority of votes at the parliamentary election went to the following coalitions: 
“Let’s move Serbia – Tomislav Nikolić” (24,01%), “For a better life – Boris Tadić” 
(22,07%) and “Ivica Dačić – SPS, PUPS, JS” (14,54%).  
 
The second round of Serbian parliamentary election is going to take place on 20 May 
2012. Both candidates, Tadić and Nikolić, are also leaders of their respective parties, 
Boris Tadić is the president of the Democratic Party (DS), Tomislav Nikolić is the 
president of the Serbian Progressive Party (SNS). Despite the fact that Nikolić’s SNS 
won the election (24,01%), it probably won’t be able to form the new government of 
the Republic of Serbia.   
 
The presidential, parliamentary, provincial and local elections went by with a notion 
of reasonable suspicion and serious accusations for election theft and election 
irregularities. The allegations did not only come from Serbian Progressive Party as 
the winner but also from other parties which withdrew their allegations about the 
election irregularities due to the regime pressures and thus silently accepted the 
election theft. A typical example of this is a minority party called “the Alliance of 
Vojvodina Hungarians” (SVM), led by Istvan Pasztor, who succumbed to the 
pressures of the regime and voted for the adoption of the report of the election results 
at the meeting of the Republican Electoral Commission (RIK) and thus allowed the 
legalization of an unfair election and election fraud. Their vote was crucial and 
decisive. Istvan Pasztor, the president of SVM, tried to justify his move by explaining 
that they don’t want to destabilize the country and want to preserve peace and 
stability by legalizing the elections.  
  
  
 
2 
 
In previous analyses the IFIMES International Istitute pointed out that the highest 
political circle in Serbia, symbolised by Boris Tadić, has shown that its functioning 
resembles that of an organised criminal group in several aspects. Tadić’s Democratic 
Party has been in power for the past 12 years, which represents an excessively long 
period of government for any political party. Serbia's incumbent regime has not 
proven to be resistant to organised crime and corruption, which is illustrated by 
numerous examples. Some of those examples have been pointed out by the EU in the 
European Parliament Resolution adopted on 29 March 2012. EP demanded Serbian 
authorities to carry out investigation and review of dubious privatisation processes in 
24 companies. Investigations into above privatisation processes which have already 
been carried out have shown that in most cases the key role was played by Boris Tadić 
and some high officials from his Democratic Party as well as Mlađan Dinkić, 
president of G17 Plus and leader of the United Regions of Serbia (URS) coalition.  The 
European Union has expressed serious doubts concerning the legality of company 
privatisation processes, including those of “Sartid”, “Jugoremedija”, “Mobtel”, 
“C market” and “ATP Vojvodina”. EU demanded Serbian authorities to declassify 
immediately documents classified as State Secret regarding the privatisation and sale 
of those companies, which is contrary to European standards. A notable case was that 
of “Mobtel” which was sold to the controversial Austrian businessman Martin 
Schlaff and subsequently to Norwegian Telenor for EUR 1,513 billion. Should Tadić's 
Democratic Party form the new government of Serbia again, the situation will become 
absurd since the revision of dubious privatisations will be carried out by the same 
government which carried out those privatisations.  
 
The IFIMES International Istitute is of the opinion that the revision of dubious 
privatisation processes should be carried out by independent international auditing 
firms at the request of the EU whereby appropriate monitoring should be ensured. 
 
 
In previous surveys and analyses we highlighted the connections between Tadić’s 
regime and organized crime. In addition to the above mentioned Tadić and Dinkić, 
the current Minister of Internal Affairs and the president of the Socialist Party of 
Serbia (SPS) Ivica Dačić was also found to be connected with crime or criminals. 
Dačić’s connections with crime stem from the times of Slobodan Milošević rule in 
Serbia. Nevertheless, the alarming fact is that Dačić is a minister responsible for the 
state's repressive authority which also fights organized crime, while he may be the 
one who collaborated the most with criminals. Dačić’s role in “the Šarić case” and 
drug trafficking is still insufficiently investigated.    
 
IS TADIĆ CONNECTED TO THE INTERNATIONAL CRIME SCENE? 
Dačić’s connection and collaboration with criminal structures is also confirmed by his 
inclusion on the “black list” of the American Administration and then his mysterious 
  
 
3 
removal from this list, which raises the question whether this removal from “the black 
list” by the US authorities involves some corruptive elements?  
 
Moreover, Dačić is one of the agents in the “Suitcase” affair, which also involved the 
former vice-governor of the National Bank of Serbia (NBS) Dejan Simić and the 
SPS functionary Vladimir Zagrađanin. They were acquitted of all charges for 
bribery after pressuring the court. The Superior Court in Belgrade acquitted them of 
all charges, despite the fact that it was indisputably confirmed during the trial that a 
suitcase with 100,000 Euro was found in Simić’s and Zagrađanin’s possession at the 
moment of their arrest. Dejan Simić’s charge was that he, as the vice-governor, 
demanded a bribe of 2 million Euros from the representative of the Israeli “TBI 
Group”, so that he could permit operation to the Export-Credit Bank. Simić was 
arrested on 11 January 2006 in his apartment, together with the SPS functionary 
Vladimir Zagrađanin. The police found a bag with 100,000 euros in Simić’s 
apartment. That evening, Zagrađanin was visiting Simić together with Ivica Dačić, 
but Ivica Dačić left the apartment just some minutes before the police raided it.  
 
Tadić’s connection with the organized crime is also illustrated by the visit of the 
Norwegian Prime Minister Jens Stoltenberg, who visited Belgrade and expressed 
his support for Boris Tadić in the second round of presidential election and also for 
the mobile operator Telenor, owned by the Norwegian Telenor. Serbian Telenor was 
recently sold to the Norwegians through dubious privatization of “Mobtel” and 
mediation by Martin Schlaff, with Boris Tadić presiding over the steering committee 
of PE PTT Communications “Serbia”, a co-owner of “Mobtel”, and being the Minister 
of Telecommunications at the same time.     
 
Boris Tadić led the Ministry of Telecommunications and presided the steering 
committee of PE PTT Communications “Serbia” at the same time for a longer period 
of time. PE PTT Communications “Serbia” shared the ownership of “Mobtel” with 
Bogoljub Karić. The role of president Tadić regarding the initiation of bankruptcy 
proceedings from that period is not clear yet, nor are determining the amount of the 
start-up capital, preparing the company for sale to the buyer connected to his party 
(DS), the sponsorship ordered by Boris Tadić etc. The investigating authorities have 
not yet heard or prosecuted Tadić regarding these issues.  
 
The contract dated 4 April 2006, the day when “Mobtel’s” property was illegally taken 
over by the newly established company “Mobi 63”, which was then sold to Telenor 
and declared a state secret, was also controversial. Why is a commercial contract 
called a state secret and for whose interests? Where did 1.513 million euros earned by 
selling “Mobtel” to the foreign owner disappear?  
 
The role of Martin Schlaff and Austrian State Telecom in these affairs are also being 
investigated in Austria, with Austrian Prosecutor's Office conducting an investigation 
against Schlaff and other individuals who participated in these affairs. Besides the 
  
 
4 
Prosecution’s investigation, an Investigating Commission of the Austrian Parliament 
has been formed in September 2011, investigating the role of Martin Schlaff and the 
former vice-Chancellor Hubert Gorbach who participated in this affair, former 
Chancellor Wolfgang Schüssel and other individuals.  Right after the formation of 
the Investigating Commission Schüssel resigned from the position of the MP in the 
Austrian Parliament.  
 
It is obvious that we’re facing elements of an organized criminal group here, which 
can be further proven by the involvement of the former European Commissioner 
Benita Ferrero Waldner and some other highly positioned EU functionaries in 
this affair, as well as Serbian functionaries. Austrian investigation will inevitably lead 
to Serbia and Boris Tadić, Mlađan Dinkić, Vuk Jeremić, and others connected to 
Martin Schlaff.  
 
One of the key problems in Serbia is the malfunctioning of the rule of law. If the rule 
of law  and its institutions operated efficiently, many problems in Serbian society 
would not exist at all. There would be no retroactive tax assessment resulting in 
enormous sums, which most companies cannot pay and consequently have to declare 
bankruptcy.  A systematic racketeering of business people and companies is taking 
place. A known example is Stanko Subotić, who became an unwanted person and 
faced prosecution after he stopped paying racket to Tadić's regime and especially to 
the Democratic Party. Why did the Prosecution fail to react to Subotić’s allegations, 
MILOŠEVIĆ’S PEOPLE ARE THE MAIN SUPPORT FOR TADIĆ AND HIS 
DEMOCRATIC PARTY 
 
The depth of the crisis in the Serbian society is illustrated also by the results of the 
parliamentary election, where Milošević’s SPS, led by Ivica Dačić in the recent years, 
won the third place. Dačić is burdened by the past, that is Milošević’s regime and 
crime. Had Serbia carried out lustration, Dačić would have been permanently 
disqualified from performing any public function, including those at the local level.   
However, Dačić and SPS, thanks to Tadić and DS, are now deciding about the future 
of Serbia. The firm cooperation between Tadić’s DS and Milošević’s SPS since 2008 
has taken away the purport of the democratic change in Serbia, which symbolically 
began on 5 October 2000.  
 
That’s why the current authorities are opposing the opening of classified files which 
represent a stern test of political will to relieve secret services from the burden of 
Slobodan Milošević's legacy .   
 
However, Boris Tadić and his Democratic Party are once again looking for support 
from Ivica Dačić and his SPS in order to maintain their power. Thus, they want to 
form a new government with the support of Milošević’s SPS, ensuring Tadić his third 
term of office at the presidential election.  
 
  
 
5 
when he publicly admitted that he was paying rackets to Boris Tadić and to people 
close to him. Why did the Prosecution fail to initiate proceedings in this case?  
 
The IFIMES International Institute believes that if Boris Tadić wins, Serbia will once 
again have the president who will not act in line with the Constitution and life in 
Serbia will keep spinning in the vicious circle of politics, mafia and crime.   
 
Ljubljana, 18 May 2012                                 
                                                                       
                                                                                   
             
                                                                      International Institute for Middle-East and 
                                                                      Balkan Studies (IFIMES) - Ljubljana                                                               
                                                                      Directors: 
                Bakhtyar Aljaf                                                                
                Zijad Bećirović, M.Sc.   
                                                                                                                        
       .                    
                                                                       
                                                                                                                             
       . 


Milosevic\u2019s people decide about the future of Serbia