Coalition austerity package – Austria to have zero deficit by 2016


After 10 weeks of negotiations the ruling coalition parties announced a package of measures totalling around 26.5 billion euros, over 5 years, which they believe will see Austria achieve a zero deficit in 2016. About 70 per cent goes of the package comprises cost cutting measures, with the remaining 30 per cent accounted for through new taxes.

Austrian Chancellor and leader of the SPÖ (Social Democrats), Werner Faymann, is reported to have described the package as a ‘socially balanced budget’ and the SPÖ have highlighted the tax changes relating to assets. Vice Chancellor and leader of the (conservative) ÖVP Michael Spindelegger has placed emphasis on the extent of the planned savings. Thus both sides appear to have achieved key objectives but also to have given ground during the negotiations.

Both parties seem to be comfortable with the final agreement.

The savings include a pay freeze next year in the public sector and a modest salary increase in 2014; changes in retirement and pensions; a public sector freeze on recruitment (with some exclusions such as teacher etc); health care reforms; reduced federal government funding to the nine Austrian states; the States to make their own contribution in saving of 5.2 billion euros (partly offset by share in new tax revenues); reduced support to ÖBB (Austrian Federal Railways); remove subsidies on diesel fuel for farmers and public transport.

Increased revenue measures include a new capital gains tax on real estate (excluding primary residences); financial transaction tax (introduced jointly with other EU countries from 2014); a Solidarity tax on top earners from 2013-2016; tax treaty with Switzerland.

The coalition believes its plans are realistic and achievable. The two parties appear to be full signed up, as are (if I’ve understood correctly) the ‘social partners’ from both the union and business sides.

It will be interesting to see the more detailed reaction of commentators over the next few days and that of the wider public. My initial perceptions are that this will probably get a positive response from Austrian voters if:

a) The parties really are committed to the plan.

b) They can convince people that they really are serious about following through on the implementation.

The latter may be the bigger of the two issues.

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