Provinces gain the upper hand in budget talks

Austria’s provinces will be allowed to breach upcoming debt limit regulations in extraordinary circumstances, it emerged yesterday evening (Tues).

David Brenner, the financial councillor of Salzburg and head of the council of councillors for financial affairs, announced that the country’s nine provinces were given the right to spend more than scheduled in the next nine years if the economic crisis worsens. The Social Democrat (SPÖ) added that the same would apply in the case of havoc caused by natural disasters like thunderstorms and flooding.

Brenner and his colleagues agreed with federal People’s Party (ÖVP) Finance Minister Maria Fekter that the provinces must not have a higher budget deficit than 0.1 per cent of the federal gross domestic product (GDP) in 2017. The federal government plans to stick to a budget deficit of 0.35 per cent of the GDP itself in that year. There is vast scepticism over whether the coalition of SPÖ and ÖVP was capable to achieve this target as Austria’s budget deficit ranges around 3.9 per cent at the moment – and would decline by just 0.7 per cent by 2012 if no extra austerity measures come into effect in the coming weeks.

Budget experts and the opposition have criticised the federal coalition for planning to introduce extensive cutbacks not before 2017 in its attempt to fulfil the European Union’s (EU) agenda on state budgets. Brenner said yesterday Fekter also agreed to make a U-turn on the provinces’ financial autonomy. He said the regions would remain in charge of their individual budgets in the coming years. The finance minister wanted the provincial governments to compensate each others’ losses and debts if any of them left the budget path.

Crucial detailed aspects were not clarified yesterday, Brenner and Fekter admitted at the end of the meeting which took place in Salzburg. They said provincial representatives and government officials were forced to meet shortly about how tax earnings would be shared between the state and its nine political regions. The current agreement expires in 2014.

The provinces – which suffered an average per capita debt increase from 2,360 Euros in 2009 to 2,735 Euros last year – receive certain sums from federal coffers filled with earnings from taxes charged by the state. At the same time, the provinces but also Austria’s economically challenged communities have to finance various infrastructure projects federal lawmakers agreed about.

The federal government is depending on the support of the opposition if the planned debt brake should become a constitutional tool. At least one of the three factions represented in parliament apart from the SPÖ and the conservative ÖVP have to approve the draft bill next week.

An agreement between the government and the Freedom Party (FPÖ) is unlikely due to the rightist faction’s demands. The party wants Austria to stop providing credits to the European Financial Stability Facility (EFSF) which the EU, the International Monetary Fund (IMF) and the European Central Bank (ECB) want to increase in volume to stabilise the condition of struggling EU members like Greece and Portugal.

Talks between representatives of SPÖ and ÖVP with the Alliance for the Future of Austria (BZÖ) of former FPÖ member Josef Bucher and the Austrian Green Party about a possible debt limit accord are ongoing.

Meanwhile, Labour Chamber (AK) director Werner Muhm has hit out against “those who spread a propaganda of fear”. Speaking about the possible risk of a downgrading of Austria’s solvency by credit rating agencies, he warned about “self-fulfilling prophecies” and a mentality of “Austrian masochism”. Muhm argued that the state of the domestic economy “is not as bad as some claim.” He said the real economy of Austria got through the crisis comparably well.

The AK director claimed Austria’s debts of 215 billion Euros and its budget deficit were not the biggest current problems. Muhm expressed concerns about the high debts of the country’s nine provinces and its communities. He said the intense business activities of Austrian banks in Eastern Europe (EE) – a region seen as on the brink of another recession – mattered more to rating agencies’ evaluations. The AK director also called on the Austrian government to carry out reforms of the domestic health sector and Austria’s pension system.