FROM THE new Eurostat statistics on the actual spending by individuals in European countries, one can conclude that the actual purchasing power of an average Romanian is by a fifth higher than the purchasing power of an average Croat.
According to Eurostat data, the purchasing power of Croatian citizens amounted to only 66 percent of the average EU purchasing power last year. In other words, it was lower than the purchasing power of an average EU resident by a third. When we compare our level of spending with, for example, Germany, it is evident that an average German has almost twice as much purchasing power as an average Croat. Compared to the spending by an average citizen of Luxembourg, the richest member of the EU, Croats have half their purchasing power.
We were surpassed by all the new EU members except Bulgaria
It makes no sense to draw a comparison between Croatia and developed western countries since it is clear that Croatia is light years away from their level. However, as Zeljko Lovrincevic from the Zagreb Institute of Economics points out, Croatia was also surpassed by all the new transition EU members in terms of per capita spending, except Bulgaria, which ranked last in the EU in terms of actual personal spending.
Too many levies are Croatia's main problem
"The Eurostat data show that Croatia is falling behind other new EU members. Croatia has low labor productivity, and it lacks industry and technology, as well as foreign investments. All we have is rent money, which we exploit three months a year, and that is not enough to make progress." Lovrincevic explains for Index.
He also warns that other Eastern European EU members have increased wages much more than Croatia has in recent years, both in the public and private sectors, with the aim of stopping the population outflow to more developed EU members. Croatia also has too many levies, particularly regarding contributions and taxes - VAT and excise duties, and especially in the area of parafiscal charges.
Lovrincevic: The new government should set a goal of catching up to Romania
"There will be no breakthroughs with this economic structure. The new government should set a goal of catching up to Romania. It may sound blasphemous, but that is our reality now," Lovrincevic says.
What do the new data show?
Still, the data published by EU statisticians show that Croatia made some progress on the EU scale in terms of the citizens' living standard last year. For example, in 2018, the actual purchasing power of Croats amounted to 63 percent of the average purchasing power of EU residents. However, two important factors need to be considered here.
Firstly, other eastern EU countries have been developing faster than Croatia, and secondly, the EU average in 2018 included the rich UK, which was excluded from the Eurostat data for last year, which now account for 27 EU members. Brexit thus lowered the EU average, which is why Croatia and other countries statistically show accelerated growth of their living standard.
However, Croatia remains at the bottom of the EU scale in terms of the purchasing power of its population, and is roughly at the same level as Hungary, with only Bulgaria behind. The purchasing power of an average Slovene, for example, is approximately a quarter higher than the purchasing power of the average Croat, while the purchasing power of an average Slovak is ten percent higher than the purchasing power of an average Croat. It should be noted that the difference between prices and wages varies from one EU member to another, but the Eurostat statistics eliminate those differences by expressing data in purchasing power parity.
Croats still have a higher purchasing power than the citizens of neighboring countries, but Croatia was surpassed by Turkey
Croats at least have a higher purchasing power than their southeastern neighbors. The average actual spending per capita in Serbia has not yet reached even half of the EU average, which means that the purchasing power in Croatia is higher than the one in Serbia by about a third.
Bosnia and Herzegovina ranked even lower: its average per capita spending amounts to only 42 percent of the Union's average, making it one of the poorest countries on the Old Continent, and the purchasing power of its citizens is much lower than that of Croatian citizens. However, Montenegro has significantly improved, and the purchasing power per capita amounted to 60 percent of the EU average last year, which means that Montenegrins are no longer far behind Croats in terms of their living standard.
Croatia was surpassed by Turkey when it comes to living standards. The purchasing power of an average Turkish citizen amounted to 68 percent of the EU average last year, which is more than the average purchasing power of a Croatian citizen.
Novotny: Croatia has a strong gray economy, which is not recorded in the official statistics
Still, some economists warn that Eurostat data do not reflect the real situation pertaining to the spending by Croatian citizens. According to Damir Novotny, an economic analyst, these data are based on official statistics that do not include Croatia's traditionally strong gray economy. Data regarding the extent of the gray economy in Croatia vary, and some earlier research has shown that as much as a third of the economic activity in Croatia takes place outside the reach of the tax system.
"Croatia has a strong gray economy. It is possible that a third of all transactions take place in the gray zone. We don't know how much we actually spend because statistics do not record the gray economy," Novotny told Index.
Damir Novotny
Novotny gives examples of the renting of apartments and flats, the sale of cigarettes, and agriculture as areas in which the gray economy in Croatia is most common. One of the main reasons for this gray economy is the high tax burden.
"In our country, people often buy a new car or tractor without paying taxes at all. Only property taxes would show what the actual purchasing power of Croatian households is," Novotny notes.
Political parties do not offer beneficial reforms
Nevertheless, Croatia is at the bottom of the EU scale in terms of its purchasing power, and many Croatian households are barely making ends meet. Reforms are needed in order to strengthen the economy and achieve higher wages, but every Croatian government so far has avoided them, as such reforms do not appeal to the voters.
"Political parties offer the expansion of certain rights in their election programs, while at the same time not dealing with key reforms," Lovrincevic concluded.
What awaits the new government?
It is uncertain what the living standard of Croatian citizens will be like this year. The corona crisis has already hit Croatia hard, and economists say the crisis will certainly be greater than in, for example, Romania, as Croatia is heavily dependent on tourism and other services.
Therefore, the new government will have two tasks: on the one hand, it will have to deal with the consequences of the crisis caused by the coronavirus pandemic, and on the other hand, it will have to try to catch up to more developed new EU members, including Romania.