The paper throws light on the problems associated with the existing system of financing of higher education and science in Croatia.The paper offers preliminary results of the scientific research project initiated by the Institute of Public Finance in 2003 which was still underway at the time of the writing of the report. The background of the issue is that despite availability of financial resources the problems particularly related to discretion in assets management and allotment, excessive bureaucracy and the lack of fundamental assets distribution information hold up the development process. To assure constant improvement of the institutional organization and effectiveness of the scientific and tertiary institutions’ functioning, the universities, government, Ministry of Science and Technology and public institutes shall agree on the financing system revision and reforming. The document gives the thesis of under-financing of the science and higher education, describes the legislative framework, overviews the role of the ministry and its consultative bodies, the internal control and audit, general aspects of the budget management of the ministry’s budget, reports the status of the public scientific-research institutes, non-profit, profit-making and tertiary-level institutions, provides information of the scientific-research programs and work, mentions newly founded National Foundation for Science and Higher Education and touches upon the issues with regard to taxation system applicability to the educational institutions.