We are raising the VAT but we are at the same time reducing health insurance contributions and parafiscal levies and are proposing stimulating measures to entrepreneurs to enable them to enhance their competitiveness, Linic said answering questions of the public via online social networks Facebook and Twitter on Sunday.

With such reliefs the economy will lower its expenditure and there will be no reason to raise prices, the minister said.

Asked about the possible reduction of employees in the public sector as an austerity measure, Linic said that it would be sufficient for the government to cut special bonuses given to individual employees as well as the number of paid extra hours and to reduce the number of part-time workers.

"This will save up to two billion kuna, which will be enough. In 2012 we will negotiate with trade union and social partners and change collective agreements," Linic said expressing his conviction that the government would succeed in that.

Asked about the reduction of the state budget, the minister said that the revenues would not be reduced "as we are sure that we will have a higher number of workers and investments and more companies".

He described the budget adopted by the government led by Prime Minister Zoran Milanovic as "a budget of financial consolidation of Croatia in the time of crisis and an encouraging one for the economy".

As for big investments the government plans to allocate funds from this year's budget for investments in the railway network, cargo and passenger transport and in the Croatian Power Company (HEP) grid.

Asked whether and when the VAT would be lowered, the finance minister sad that he did not believe that the VAT rate would be altered any more during this term of the government, as, he said, "the economy needs encouraging measures and an easier tax burden". On the other hand, a number of projects should be kick-started and financed from the state budget, he explained.