Placebo worries tarnish debt limit talks

Alliance for the Future of Austria (BZÖ) boss Josef Bucher has labelled the government’s debt limit bill a “placebo brake” as chances for an accord between the coalition and one of the parliament’s three opposition parties are decreasing.

The right-winger said today (Thurs) he was willing to fight for an agreement until Monday but also warned that the government’s measures may end up as nothing but a “placebo brake”. Social Democrats (SPÖ) and the People’s Party (ÖVP) want to make their planned debt brake a constitutional law to raise Austria’s financial stability and credibility in the eyes of international rating agencies. A two-third majority in parliament is needed to pass constitutional laws. This means that the under-fire coalition – which shows more and more disagreement about various issues – needs the support of at least one opposition party.

Bucher hinted last week that his faction may back the draft bill but also underlined that the coalition must pledge to lower the maximum tax rate from 50 to 42 per cent. The ex-Freedom Party (FPÖ) member dismissed accusations that such a move would protect the country’s rich from higher taxation pressure. Bucher claimed such an agreement would ensure that no tax increases would be ahead in the coming years.

The government is tight-lipped about whether taxes may be increased or new taxation measures introduced to reduce the state debt and budget deficit until 2020. The ÖVP reportedly wants higher taxes on petrol fuel in form of a so-called eco tax which should encourage Austrians to switch to electric cars (e-cars) and public transport. The SPÖ has campaigned for a higher tax rate on assets but opposes the ÖVP’s proposal to reintroduce tuition fees.

Green Party head Eva Glawischnig admitted today that she did not expect any further talks between her faction’s financial experts and representatives of the government about a possible go-ahead by her party to the disputed debt brake plans. ÖVP whip Karlheinz Kopf met Green Party leaders to find out whether they might rethink their appeal for higher taxes on assets earlier this week.

The FPÖ has become somewhat of an onlooker of the feuds between the government and the opposition after it emphasised its unwillingness to take back calls for a stop of Austrian payments into the European Financial Stability Facility (EFSF). The EFSF was created to financially support struggling European Union (EU) and Eurozone countries like Greece, Ireland and Portugal. The FPÖ, which is headed by Heinz-Christian Strache, said the government should increase its engagement in helping Austrians to weather the crisis instead of pouring more taxpayers’ money into the EFSF.

Bernhard Felderer, who heads the Institute for Advanced Studies (IHS), warned that Austria “would be in trouble” if no accord about a constitutional debt limit law was reached. He said that credit rating agencies would not consider a law passed with a simple majority of SPÖ and ÖVP delegates as credible. “Adding the debt limit to the constitution would be important. Austria has to set a clear signal,” he told Die Presse.

US rating agency Moody’s is expected to present a report about the financial condition of Austria – which has debts of 215 billion Euros – later this month. Experts think that Moody’s will not correct Austria’s top credit rating (AAA). However, leading economists said it was possible that the agency might lower its outlook on the EU member’s economy.

ÖVP Vice Chancellor Michael Spindelegger said earlier this week that a downgrade of Austria’s AAA rating would be a “disaster for the whole country” due to expected effects on Austrian government bonds’ interest rates. SPÖ General Secretary Günther Kräuter told the Kurier today: “The opposition seems to underestimate how serious the whole situation is.”