Debt brake meets mounting mistrust

The political leaders of Austria’s provinces are at odds about the government’s debt limit decision.

Social Democratic (SPÖ) Chancellor Werner Faymann and People’s Party (ÖVP) Vice Chancellor Michael Spindelegger announced on Tuesday that the coalition decided to implement a so-called debt brake. The government is dependent on the support of at least one of the three opposition factions in the federal parliament to add the law to the constitution.

Faymann said he wanted Austria to be among Europe’s best considering debt rates and joblessness. He said in parliament yesterday (Weds) that the topic must not be considered from a party-political point of view. Referring to the colours of the national flag of Austria, the SPÖ boss told the opposition: “It’s about red, white and red.”

Spindelegger made clear that all government ministers would be forced to make cuts in the coming years to lower Austria’s debt rate to 60 per cent of the gross domestic product (GDP) by 2020. This would be a decrease of almost 15 per cent compared to the current debt. Austria is in the red by 215 billion Euros. ÖVP Finance Minister Maria Fekter pointed out that the country was forced to fork out high amounts to meet the interest rates of its debts.

Now Herbert Sausgruber, the ÖVP governor of Vorarlberg, criticised the coalition for failing to inform the heads of the country’s nine provinces before presenting the debt limit plans in public. The conservative politician told Die Presse today that he generally supported attempts to lower the public debt but branded the government’s approach as “inappropriate” since no one had got in touch beforehand. Sausgruber – who revealed plans to retire by the end of this year last month – said it was obvious that the government had to act quickly considering the fragile economic outlook for Austria and the whole Eurozone. This term describes the 17 European Union (EU) members which use the Euro as currency.

SPÖ Governor of Salzburg, Gabi Burgstaller, said yesterday she expected the leaders of the federal government to meet the council of provincial governors for talks soon. Burgstaller said on Tuesday she was ready to cooperate with the SPÖ-ÖVP coalition about details of the debt limit draft bill which might affect the province’s finances. SPÖ Vienna Mayor Michael Häupl lauded the debt brake as an “important signal of international significance”.

Burgenland Governor Hans Niessl of the SPÖ also defended the controversial decision. He said: “We have to face the facts. It is important to secure Austria’s AAA rating.” The Social Democrat is quoted by Die Presse as saying that the task of reducing Austria’s debt burden was a “national concern (…) affecting the state, its provinces and communities.”

Statistics show that Austria’s provinces’ overall per capita debts rose from 2,360 Euros in 2009 to 2,735 Euros in 2010. Lower Austria, the country’s largest province, registered the highest per capita debt rate in both years (2009: 4,309 Euros; 2010: 4,806 Euros). Vienna did best in 2009 with 1,103 Euros. The western province of Tyrol had the lowest per capita debt rate last year with 1,465 Euros, according to the State Debt Commission.

Research also reveals that the state was mainly responsible for Austria’s budget deficit which was 4.6 per cent in 2010 (2011: 3.9 per cent) compared to the federal gross domestic product (GDP). The country’s overall debts currently resemble 74 per cent of its GDP. The average debt of the European Union’s (EU) 27 members was 80.2 per cent of their GDPs last year. Austria’s debt resembled just 63.7 per cent of the country’s GDP six years ago. The government wants to push the percentage figure below 60 per cent by 2020 to meet the EU’s so-called Maastricht criteria – rules hardly any member nation is currently sticking to. Luxembourg, Finland and Estonia are the only three Eurozone members which meet the regulation at the moment.

Austria is also pressurised to act because of the climbing costs of the healthcare sector. Research shows that there will be as many pensioners as employed people in the country in 2030. Pensioners will be in the majority 20 years later. Austrians’ life expectancy is increasing but they are retiring earlier than ever before – a development which puts the country’s health and pension sector under enormous pressure.

Faymann appealed to the Freedom Party (FPÖ), the Alliance for the Future of Austria (BZÖ) and the Green Party to back the debt limit draft bill. He said he wanted to know the opposition supported attempts to restore the public budget, not just the country’s populace. Experts fear that the coalition may fail to create the debt brake into a functioning measure considering the political importance of the provinces and the high possibility that regional decision-makers say no to all possible cost-cutting suggestions if they affect their area of responsibility.