13 November 2013

Focus: Austria may face a budgetary crisis

Translated from the German

Before the elections at the end of September everything seemed to be just fine in Austria. Now, however, during coalition negotiations it was revealed that the Austrian budget could be missing around €28-30 billion, according to some estimates even up to €40 billion by 2018. That would amount to roughly half of the Austrian federal budget. 

The Greens have called for a committee of inquiry. Finance Minister Maria Fekter (ÖVP) is under pressure and call for a resignation are getting louder. The budget deficit became apparent during the coalition negotiations between the SPÖ and the ÖVP after the general election on 29 September. Both parties were already part of the old government, however, and accordingly great is the anger of many Austrians that they have only just learned of the gap. Before the election, Finance Minister Fekter had even promised some scope for relief: "We want to relieve families first. We also believe that that our taxes are too high, especially on labour."

However, the budget deficit had been anticipated by many experts. The Austrian Institute of Economic Research had already warned that the government calculations had been far too optimistic: They planned for 2014 a revenue of €500 million from a European financial transaction tax, which is not even decided upon yet. Fekter also expected to collect up to €750 million through a reform of taxation on real estate profits - which in reality is providing much less. The pension reform also falls short of forecasts. Civil servants continue to retire much earlier than ideally aimed for, and thus the savings target there was missed.

The old budget forecast was also far too optimistic on figures for economic growth. The government continued to use the assumptions made for 2012 and simply ignored the amended forecasts by economic researchers.

Partly responsible is also the cost of bank bailouts, especially for the Hypo Alpe Adria (HGAA), which this year alone will probably need €1-1.3 billion. Nearly €4billion have already been invested in the bank, with the foreseeable likelihood that more would be needed. The government, however, had not included any further bailout funds in their budget calculations for 2014.

Still, Margit Schratzenstaller from the Austrian Institute of Economic Research explains: "The country is not a crisis country, despite the condiderable hole in the current budget". In fact, Austria's position differs significantly from the other crisis countries. With about 75 per cent of gross domestic product (GDP), the Austrian debt is currently less than the German. Austria's budget deficit in recent years was at 2.5 per cent of GDP under the Maastricht limit of 3 per cent. The rating agency Fitch has rated the creditworthiness of the country with the highest rating AAA. In addition, Austria's economy is in good shape. In the coming years, the economy is expected to grow sturdy again, with a growth of 1.6 per cent predicted by the European Commission.

Full article (in German)

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