Going, Going, Gone
The Freedom Party and People's Party's planned savings including an end to the annual Klimabonus are largely tax increases by another name
Servus!
Last week, I wrote to you about Austria’s prospective coalition government and the spending plans they had just sent to Brussels. As a reminder: to comply with the European Union’s Maastricht criteria, Austria must bring its budget deficit back down to below 3 percent of GDP. By conceiving of its own plan to lower costs over the course of seven years, Austria avoided entering an excessive deficit procedure with the European Commission, retaining the autonomy to bring down the deficit at their own pace.
What one might call Austria’s concept of a plan to find €6.4 billion in savings in the first year was, as discussed, as follows. €3.18 billion was going to come from a reduction in state subsidies, i.e. outgoings, €1.1 billion from ministerial budgets, €0.92 billion from changes to the tax system, and €0.24 billion from supposed reforms that improve efficiency and crack down on waste, fraud, and abuse. The remaining €0.95 billion was to come from “further measures” to be determined.
Negotiations between the far-right Freedom Party (FPÖ) and conservative People’s Party (ÖVP) are cantering along at a pace quite unlike the rancorous and ultimately doomed talks between the ÖVP, Social Democratic Party (SPÖ), and liberal NEOS that broke up at the beginning of January. It is not out of the question that these negotiations could be wrapped up by the end of the month and a new government installed in February. As such, we now have a much better idea of the sofas down the back of which the €6.4 billion is going to be found.
On the spending side, the largest single saving is going to come from doing away with the Klimabonus, the annual payout to Austrian households that offsets the impact of the country’s tax on CO2. That will save the state around €2 billion, but since the tax on CO2 is here to stay, this move constitutes a de facto tax increase, especially for those who commute by car or heat their homes with gas or oil. Almost €500 million will be saved by cutting expenditure on climate change initiatives and €350 million from an end to Bildungskarenz, leave for further training or education paid for by the AMS, the country’s employment agency.
Government ministries face a 15 percent cut in their budgets for operational costs, which will save €1.1 billion. And though the coalition pledged to institute no new taxes, they will raise almost €1 billion by increasing existing taxes and, as they term it, closing loopholes in the tax code. The sale of photovoltaic panels will now be subject to VAT (€175 million), taxes on tobacco and gambling are going up (€50 million and €35 million), as is car insurance for e-vehicles (€65 million). The largest single tax increase of this kind, however, will come from an increase in health insurance contributions (€320 million).
I said last week that the FPÖ and ÖVP were not being honest about what bringing down the deficit while pledging to institute no new taxes, in particular either a wealth or inheritance tax, would mean in practice. Now the reality is before us. The unemployed will no longer be allowed to earn money on the side while searching for a full-time post; the poor will see entitlements frozen; working age people will see their pension pots stagnate; pensioners are going to be faced with higher health insurance contributions. And these are just the first cuts—what Gabriel Felbermayr, head of the Austrian Institute for Economic Research, has called the “low hanging fruit” with reference to things like the Klimabonus and Bildungskarenz. The FPÖ and ÖVP will have to find another €2 billion a year for six additional years. Each round of cuts is going to be harder and, likely, more unpopular than the last.
Bis bald!
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SPÖ Hold Burgenland
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Early Elections In Vienna
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Martin Pollack, 1944-2025
The journalist, writer, and translator Martin Pollack has died at the age of 80. Pollack was best known for his 2004 book Der Tote im Bunker, an excavation of his family’s Nazi history, as well as his expertise in the culture and history of Poland, translating the works of Ryszard Kapuściński among others into German.
It’s all so disheartening, but thank you for keeping us so well-informed. Such times!