Downgrade a ‘disaster for the whole country’

People’s Party (ÖVP) Vice Chancellor Michael Spindelegger has warned it would be a “disaster” if Austria lost its AAA credit rating.

Austria’s soundness is currently given the best-possible rating by the world’s leading credit rating agencies, Moody’s, Standard & Poors (S&P) and Fitch. Economist Bernhard Felderer recently warned that they could downgrade their outlook for the Austrian economy if the country kept refusing to carry out reforms to reduce the public debt. Felderer, who heads the Institute for Advanced Studies (IHS) in Vienna, also explained that an Italian state bankruptcy could pose serious risks to Austria’s solvency.

Spindelegger warned from a “disaster for the whole country” yesterday (Tues). He once more appealed to the opposition to support the government’s plans to make the planned debt limit a constitutional tool. At least one opposition faction must approve the plans of the coalition of Social Democrats (SPÖ) and Spindelegger’s faction since a two-third majority is needed to add the debt brake to the constitution.

SPÖ Chancellor Werner Faymann ruled out that the government would accept an “exchange of policies” to get the needed support. Faymann reacted to speculations that the coalition might give the green light to some demands of the Greens or the Alliance for the Future of Austria (BZÖ) to pass the debt brake bill by the end of this year. The government is not expected to come to a conclusion with the Freedom Party (FPÖ) about the debt regulation measures since the right-wing faction wants Austria to stop providing Greece with credits in return for a yes to the disputed law. Neither the SPÖ nor the ÖVP can imagine stopping investing Austrian assets into the European Financial Stability Facility (EFSF).

“We will not exchange anything, regardless whether the demands are right or wrong,” Faymann declared yesterday. The BZÖ said Austria’s top taxation rate must be lowered from 50 to 42 per cent if the government expected its approval of the debt brake. However, the SPÖ has plans to raise the rate to 55 per cent. People earning 300,000 Euros before tax and above should be hit by the tax reform which could help the coalition to a 1.5-billion-Euro windfall. BZÖ head Josef Bucher also appealed to SPÖ and ÖVP to promise not to increase any taxes in the coming years – a demand which stands in stark contrast to the Social Democrats’ plans to introduce a tax on assets and high salaries. The party is also in favour of increasing property taxes while the ÖVP could imagine upping the mineral oil tax as Austrians refuse to drive less despite soaring petrol prices.

Spindelegger refused to comment on the latest suggestion of Johanna Mikl-Leitner yesterday. Mikl-Leitner, who became new head of the Federal Workers Association (ÖAAB) at the weekend, said Austrians with wages of half a million Euros a year and more should be forced to pay a so-called solidarity contribution for a limited period of time. The ÖAAB leader and interior minister claimed such a measure would be appropriate in economically difficult times. Her idea bears too much resemblance to the SPÖ’s tax plans in the opinion of conservative ÖVP officials – who were angered when she appealed to the country’s rich in a speech on Saturday: “Give me the money, hand over the cash!”

The vice chancellor said he would not express his opinion on “individual suggestions”, arguing that a general budget concept was what mattered to him. However, Spindelegger claimed that higher taxes on high wages would not mean significant extra revenues. He branded the potential additional earnings of the state from such a measure as “peanuts”. Faymann made clear at the same press conference that he was in support of an increase of the tax burden of people who earned a lot. The chancellor said with a smile that it did not matter to him whether extra tax revenues were called peanuts or cash. Spindelegger counterattacked by stressing that “this topic is too important to ridicule it.”

Meanwhile, ÖAAB General Secretary Lukas Mandl underlined that Mikl-Leitner’s proposal had the full support of his organisation. Mandl admitted that such a tax plan was “just a symbolic action” but nevertheless of great importance. He said the new ÖAAB leader’s statement was the “right message”.