Here Come The Budget Cuts
The Freedom Party and People's Party have pledged to trim €6.4 billion from Austria's budget in 2025 principally through spending cuts
Servus!
Coalition negotiations between the far-right Freedom Party (FPÖ) and conservative People’s Party (ÖVP) are off at the races. On Monday, the two parties announced they had agreed that Austria’s forthcoming budget consolidation—necessitated by a need to bring the country’s budget deficit back down below 3 percent of GDP as mandated by the European Union’s Maastricht criteria—would take place over the course of seven years. If that timeline seems familiar, that is because the ÖVP, Social Democratic Party (SPÖ), and liberal NEOS had agreed precisely the same, days before negotiations between the three parties fell apart over how best to go about it.
Like the ÖVP, SPÖ, and NEOS, the FPÖ and ÖVP would, too, attempt to consolidate Austria’s budget without entering an excessive deficit procedure with the European Commission. The latter would have allowed Austria to reduce its deficit more gradually and evenly over the seven-year period. Instead, the FPÖ and ÖVP plan to cut hard and fast in 2025, trimming €6.4 billion from the budget in a single stroke. The two parties will then have to find, approximately, another €2 billion every year between 2026 and 2031.
As far, the FPÖ and ÖVP have only produced an outline of how they plan to find €6.4 billion in savings all at once. €3.18 billion will come from a reduction in public subsidies, a.k.a outgoings, €1.1 billion from ministerial budgets, €0.92 billion from changes to the tax system, and €0.24 billion from that favorite of all politicians: reforms that will improve efficiency and crack down on waste, fraud, and abuse. The remaining €0.95 billion will come from what have so far been described as “further measures”—watch this space.
Austria’s prospective right-wing government will, then, look to balance Austria’s budget quickly by making dramatic spending cuts: a dangerous thing to do at a time when the country’s economy is in the doldrums. The Austrian Institute of Economic Research previously warned that “the Austrian economy is expected to grow by 0.6 percent in 2025” only and that “a sharp reduction in the deficit to the limit of 3 percent of economic output set out in the EU treaties would dampen GDP growth by 0.5 to 1 percentage point, depending on the nature and timing of the measures.”
The parties have also handcuffed themselves by committing to introducing no new taxes, including a wealth tax or inheritance tax: SPÖ proposals that proved a major stumbling block in their negotiations with the ÖVP and NEOS. The FPÖ has also said existing taxes like value added tax won’t be raised under their watch, something the ÖVP was reportedly looking to do (from 20 percent to 22 percent). Instead, the ÖVP and FPÖ will raise almost €1 billion by “closing loopholes” and taking “measures against tax evasion,” which simply doesn’t add up unless the two parties plan to do away with major giveaways like the family tax credit, which costs Austria around €2.5 billion per annum.
As for the coalition’s planned €3.18 billion reduction in public expenditures, two proposals have been muted. The first: Cut the Klimabonus, an annual payout designed to offset the effects of Austria’s tax on CO2, which might save €2.3 billion. The second: Reform or remove leave for further training or education paid for by the state employment agency, which at best would save €300 million. That’s €2.6 billion on a good day, but what about the rest? And what of the cuts that would need to be made in the six years after that? Right now, the FPÖ and ÖVP are simply not being honest with the Austrian people about what bringing down the deficit almost exclusively through spending cuts is going to mean in practice: for their pensions, for the healthcare and education systems, and for how much money they have left in their pockets at the end of the month.
Bis bald!
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