On 3 July 2026, the Council of the European Union adopted a recommendation setting maximum net expenditure growth rates for Croatia: 4.9% in 2026, 4.1% in 2027, and 3.7% in 2028, with cumulative growth from 2023 reaching 42.9% by 2028. The recommendation, issued under the reformed EU fiscal framework, requires Croatia to curb spending while allowing flexibility for defence investments under the national escape clause activated on 8 July 2025.
Croatia's 2025 net expenditure growth of 10.9% exceeded the recommended rate by 1.8% of GDP, and the cumulative deviation for 2024-2025 stood at 1.4% of GDP (0.9% after defence flexibility). The projected 2026 growth of 5.7% also marginally overshoots the recommended ceiling by 0.3% of GDP, bringing the cumulative deviation for 2024-2026 to 1.6% of GDP (1.0% after defence flexibility). The general government deficit is forecast at 3.0% of GDP in 2025, improving to 2.9% in 2026 and 2.7% in 2027, while public debt is projected to decline from 56.3% of GDP at end-2025 to 55.6% by end-2027. Defence spending, at 1.5% of GDP in 2025, is expected to rise to 1.6% in 2026.
The Council calls on Croatia to conduct a comprehensive review of tax expenditures, which exceeded 4% of GDP in 2023, strengthen property taxation, improve spending reviews, and accelerate implementation of reforms and investments in research, innovation, and cohesion policy. The recommendation is part of the annual European Semester cycle and follows the Commission's spring 2026 country-specific assessments.
Stakeholder impact The fiscal tightening will affect several groups. Croatian taxpayers may face higher property taxes or reduced tax breaks as the government reviews tax expenditures. Businesses in research and innovation could benefit from accelerated cohesion fund disbursements and targeted reforms. Defence contractors stand to gain from increased defence spending under the escape clause. Public sector entities will need to improve spending efficiency, potentially leading to administrative restructuring. The trade-off involves short-term fiscal consolidation for long-term fiscal sustainability, with defence spending shielded from cuts.