Finance Minister Slavko Linic said on Wednesday the increase in the VAT rate from 23 to 25 percent would mean higher prices of some products, but not of vitally important ones.
"We can see that some local self-government units have decided to raise prices, but it evidently is not related to VAT as seen from water and drainage bills," Linic told reporters ahead of a joint assembly of the Association of Municipalities and the Association of Towns.
Linic recalled that budget projections envisaged an inflation rate of 2.5 percent.
"It will be a difficult burden for citizens, notably because savings will be made and rationalisation will be carried out. What is important regarding VAT and what citizens should understand is that the purpose of the VAT increase was not to increase state spending, but to try to create new jobs and collect funds for launching investments in the business sector."
Linic added that the VAT increase of two percentage points was no reason for price hikes.
Asked if the VAT increase would lead to an increase in prices of oil products, Linic said the question should be addressed to distributors of those products, adding that the message for the time being was that those prices would not go up.
Asked if Croatia was facing a new recession considering a GDP decline in the last quarter of 2011, Linic said the whole year 2011 was problematic in terms of economic growth, which was around zero.
"The government's programme is very clear - we will try to revive the economy and ensure investment growth, so I see no reason for us to think about a recession."
