Branko Grcic

Croatia's government on Thursday agreed an economic convergence programme for the 1015-2018 period, which will be submitted to the European Commission for approval.

The report assessed the main economic indicators, planned mechanisms for controlling negative trends and planned reforms aimed at keeping the budget deficit and public debt in check.

The Croatian government announced the tax hikes on Thursday in a bid to halt the growing state budget deficit - a move that it said would raise an extra 79.2 million euro annually.

Croatian deputy prime minister Branko Grcic said on Wednesday that the cancellation of the South Stream project was "an impulse to build the LNG terminal even faster".

Grcic said that the cancellation of South Stream, which was due to take Russian gas through Bulgaria and Serbia to Europe, would make the terminal on Krk more valuable.

Croatia unveiled new tax policies on Thursday, which include a tax on bank savings, lower rates of income tax and new procedures for VAT collection.

The announced tax on bank savings of 12 per cent will affect about 400,000 citizens with money in savings accounts, about 50,000 of whom have 10 billion euro in savings, earning them 300 million euro from interest annually.

Croatia's centre-left government has announced income tax cuts for 2015, increasing the untaxed threshold in salaries and lifting the limit at which the highest income tax rates of 40 per cent start.

Untaxed incomes rates will rise from 293 euro to 346 euro a month, bringing some relief to all wage earners.