Too expensive for tourists? Why Croatia’s prices are raising concerns

Brač

ZAGREB, 6 February 2025 (Hina) – The price competitiveness of Croatian tourism is under threat, and the reasons for rising prices cannot be attributed to energy costs, which are the lowest in the eurozone, nor to VAT, government representatives stated on Wednesday at a meeting with the tourism sector.

They also assessed that, in the long run, this situation is unsustainable and could negatively impact economic growth.

This was discussed during the nearly three-hour second session of the Council for Tourism Development Management at the National and University Library (NSK), chaired by Prime Minister Andrej Plenković, in the presence of several ministers, numerous representatives of tourism associations and companies, as well as trade organisations.

The Governor of the Croatian National Bank (HNB), Boris Vujčić, also participated, highlighting that, over the past three years, the largest contributor to inflation has been service prices, whose increase has been “high and persistent,” particularly in hospitality and accommodation services.

As a result, last year’s tourist season was marked by stagnation in overnight stays by foreign visitors and a decline in Croatia’s market share within the Mediterranean tourism sector.

Furthermore, the increase in tourism prices in Croatia has been significantly faster than in competing countries for several years, reaching around 50 per cent, compared to an average of 15-20 per cent in Mediterranean nations.

“This has undermined our price competitiveness—we have become more expensive than Greece and Spain, for example,” Vujčić warned.

He also pointed out that the real spending of foreign tourists is declining—and at a faster rate than in other countries. “If this trend continues, it will not be good,” the governor cautioned. He further explained that the relatively rapid rise in Croatian tourism prices cannot be attributed to higher cost pressures than in other countries, nor can it be explained by energy prices, as Croatia has the lowest energy costs in the eurozone.

Given these trends, expectations regarding future tourism revenues and their significance for overall economic activity have been lowered, Vujčić noted.

Decline in Arrivals and Overnight Stays from Key Markets

Tourism and Sports Minister Tonči Glavina warned of last year’s decline in arrivals and overnight stays from key source markets such as Germany, Austria, the Czech Republic, and Italy.

He also highlighted that, in the third quarter of 2024—the most crucial period—revenues from foreign tourists were 0.7 per cent lower than in the same period in 2023.

Inflation hit Croatia hard

Additionally, he compared accommodation and restaurant prices in Croatia with those in Mediterranean countries over a longer period. In 2016, these prices in Croatia were 64 per cent lower than in France and 46 per cent lower than in Italy.

However, by 2023, the gap had narrowed to just around 20 per cent, while Croatia had simultaneously become a more expensive destination than Greece and Spain.

Despite having the best post-pandemic recovery, Croatia’s market share in Mediterranean tourism has stagnated, while other destinations in the region have seen growth.

Glavina stressed that in 2025, the focus must be on improving the price competitiveness of Croatian tourism and ensuring better value for money.

The Director of the Croatian National Tourist Board (HTZ), Kristjan Staničić, provided a detailed analysis of the situation in 10 key source markets, concluding that for nearly two-thirds of them, the overall cost and quality of travel packages will be the primary factors influencing destination choice.

He also warned that Croatia is becoming too expensive relative to what is offered in other Mediterranean destinations.

He reported that an HTZ “flash” analysis of prices on a global accommodation rental platform revealed that, for the upcoming Easter holidays, minimum accommodation prices in Croatia are already higher than in Greece and comparable to those in Italy and Spain.

Additionally, for the first week of August, Croatian prices exceed those of Mediterranean competitors.

Missed Tax Revenue Due to Reduced VAT in Tourism Amounts to Around One Billion Euros

Deputy Prime Minister and Finance Minister Marko Primorac stated that Vujčić’s presentation “demystified” claims that rising energy costs are a key reason behind higher tourism prices in Croatia. He also recalled government measures to cap fuel, electricity, and gas prices.

He noted that, to maintain the competitiveness of Croatian tourism, the government reduced VAT rates to 13 per cent for various tourism-related services and to 5 per cent for a range of food products. Therefore, in Primorac’s view, VAT cannot be blamed for rising prices.

The tax revenue lost due to the 13 per cent VAT rate in tourism amounts to approximately one billion euros. This means that, in a way, Croatian citizens have indirectly supported the development of the tourism sector through foregone tax revenue.

Therefore, it is wholly inappropriate that these same citizens cannot afford holidays in Croatia and instead opt for more affordable and competitive destinations, Primorac argued.

“Let’s be realistic—Croatia’s tourism offering is not so superior as to justify prices being higher than in Greece, Spain, or Portugal,” he remarked.

Primorac: “I Feel Like You’ve Gotten a Little Too Carried Away”

Concluding his remarks, the finance minister told tourism sector representatives that rising prices in their industry were problematic.

“I personally feel that you’ve gotten a little carried away with these prices. Or rather, a lot carried away,” he said, warning that such a situation is neither normal nor sustainable in the long run and could impact economic growth.

Responding to Tomislav Fain, President of the Association of Croatian Travel Agencies (UHPA), who pointed out that, despite being lowered, VAT on tourism remains higher than in competitor countries, Primorac acknowledged that Croatian tourism VAT is not the lowest.

However, he maintained that VAT alone does not justify prices being around 20 per cent higher than in competing nations.

Addressing concerns that too few Croatian citizens can afford summer holidays on the Adriatic, Fain highlighted the issue of a significant number of unregistered domestic and foreign guests.

He also pointed out the problem of “undeclared work,” such as unlicensed bicycle and boat rentals, which necessitates stricter controls.

Boris Žgomba, President of the Croatian Chamber of Commerce’s Travel Agency Association, agreed that Croatia is becoming less price-competitive but also noted that 80 per cent of tourists’ spending occurs outside of their accommodation.

No Excess Profits for Hoteliers

Veljko Ostojić, Director of the Croatian Tourism Association (HUT), emphasised that this external spending is a crucial factor.

Presenting an analysis of hotel business performance in an inflationary environment, he stated that from 2019 to 2024, the hotel sector achieved an average annual revenue growth of 7.9 per cent, while costs increased by 9.6 per cent per year.

Dubrovnik

He added that hotel sector profitability has particularly deteriorated in 2023 and 2024, with wage increases exerting the greatest cost pressure.

“There is no talk of excessive profits here—hoteliers are not setting prices arbitrarily,” Ostojić insisted, citing data that Croatian hotel accommodation prices rose by an average of 1.9 per cent last year, compared to 4.5 per cent in competing Mediterranean markets.

High Commissions from Global Booking Platforms

Barbara Marković, President of the Croatian Association of Family Accommodation, warned about the high commissions charged by global booking platforms. She suggested that Croatia should develop its own national booking platform in the future.

Jelena Tabak, President of the Croatian Chamber of Commerce’s Hospitality Association, expressed hope that pricing strategies would be approached more seriously this season, as occupancy rates had already shown signs of weakening mid-season last year.

She also highlighted that VAT on beverages in cafés remains high, while Katarina Hauptfeld pointed out the 25 per cent VAT rate on certain services related to passenger transport within her cruise organisation business.

Dalibor Kratohvil, President of the Croatian Chamber of Trades and Crafts, stressed that inflation has created challenging conditions for hospitality businesses. He advocated for reducing VAT on beverages to 13 per cent, not to lower prices but to prevent further increases.