Croatia's government yesterday proposed decreasing state salaries by five per cent and charging for school textbooks to cope with the economic crisis, with even deeper cuts expected soon.

The proposed budget cuts are aimed at saving €106 million.

"We propose a redistribution of more than 2.2 billion kunas ...and savings of 780 million kunas," newly installed Prime Minister Jadranka Kosor told her cabinet's first session.

The savings would come mainly through a five per cent decrease in salaries of state officials, through cuts in their expense accounts and by abolishing free textbooks for primary and secondary school students. Deeper cuts are expected by the end of the month, and Kosor confirmed the latest proposals were "not final," adding the budget was most likely to be reshaped again in July.

Croatia already revised the budget in April. The country's gross domestic product shrank 6.7 per cent last year, the sharpest fall since 2000. Yesterday, Kosor, who was named the country's first female prime minister last Monday, said the government had forecast that GDP would contract 4.5 per cent in 2009.

Croatian National Bank governor Zeljko Rohatinski warned earlier last week that the country would need to seek help from the International Monetary Fund if it did not make serious cuts.

Parliament is to discuss the budget proposals next week.