"We expected the budget to be like this and we are disappointed. The budget is harmful," Milanovic said during a debate on the draft budget for 2011, asking on several occasions Prime Minister Jadranka Kosor and members of her government if they were aware of the damage they were doing.

"Are you aware that despite this year's successful tourist season, we are facing an economic decline of two percent, and we'll be lucky with such a scenario. Are you aware that that is the result of a bad economic policy?" Milanovic said.

"During your term in power, a budget deficit of HRK 40 billion has been accumulated," the SDP leader told the government members, adding that the real question was where that money had gone.

He went on to say that Croatia was stagnating and that its entry to the EU would not change anything.

Milanovic began his address to the parliament by responding to PM Kosor's criticism of the Zagreb city government and its municipal services provider Zagrebacki Holding over lack of fiscal discipline, which she said had resulted in a downgraded credit rating for Zagrebacki Holding.

Milanovic said that the decision of the Zagreb city government to decrease the capital's budget by 17 percent this year, from HRK 8 billion to 6.6 billion, was an example of its awareness and responsibility for the situation in the country.

"On the level of the entire country, a 17-percent decrease would amount to HRK 21 billion. And are you aware that you have not reduced spending by a single kuna? Are you aware that it does not make any sense?" Milanovic asked.

Commenting on the government's bill on fiscal accountability, Milanovic said that the SDP had put forward such a bill a year ago but it was turned down by the parliamentary majority.

Kosor responded that the downgraded credit rating for Zagrebacki Holding was proof of the lack of fiscal discipline and responsibility, which she said was why the government had put forward its bill on fiscal accountability.

Once adopted, the law will prevent the spending of funds for purposes other than designated, Kosor said, mentioning in that context the northern Adriatic city of Rijeka, where the SDP is in power.

She also mentioned the case of the town of Zlatar, saying that its former mayor, a member of the Croatian People's Party (HNS), had pauperised the town.

"Once the law (on fiscal accountability) is adopted, that will no longer be possible," she said.

Responding to the SDP's criticism that the government was insufficiently cutting budget expenses, Kosor said the government agreed that more cuts were necessary, but that it would not do it by reducing salaries and pensions.