EC warns debt-ridden Austria

Austria has been criticised for its high public debts.

The European Commission (EC) announced yesterday (Weds) the country – which became a member of the European Union (EU) in 1995 – must do more to reduce its debts. The state’s debt ranges around 74 per cent of the gross domestic product (GDP). EU rules say that member countries must ensure to keep the rate below 60 per cent.

The Austrian government coalition of Social Democrats (SPÖ) and People’s Party (ÖVP) passed a 26.5-billion-Euro austerity package earlier this year to meet the EU’s criteria on members’ budgets. The opposition criticised the government for failing to carry out substantial reforms. They branded the package – which the government defended as necessary and unavoidable – as an uncreative accumulation of tax hikes.

Austria does much better than many other EU member countries in terms of public finances. The average debts of the EU-27 climbed from 80 to 82.5 per cent of their GDPs from 2010 to 2011 while the 17 Eurozone members experienced even greater economic turmoil (2010: 85.3 per cent; 2011: 87.2 per cent).

EC experts said yesterday Austria’s plans about how to fulfil the EU’s financial rules until 2017 were “ambitious” due to various uncertain aspects such as the question whether a tax on financial transactions comes into effect in the foreseeable future. The SPÖ-ÖVP coalition controversially decided to consider additional revenues of several hundreds of millions of Euros a year from such a levy in its five-year budget plan.

The EC also said Austria must make more of the potential of immigrants and the aged in terms of employment. The institution made aware of demographic developments indicating that the number of native Austrians will wane due to lower birth rates. At the same time, people living in the country are getting older these days than ever before.

The political institution said it welcomed Austria’s focus on renewable energy sources and eco-friendly technology – but it also expressed concerns about the country’s greenhouse gas emission statistic. Other negative aspects mentioned by the EC are a lack of services and facilities for sick and elderly people, the low retirement age and the high share of part-time among employed women.

Speaking about the country’s fiscal plans, a representative of the EC in Vienna said today that the tax pressure on labour would rise under the recently passed budget consolidation package. He told radio station Ö1 that the increasing taxation rate would make economic growth more difficult.

The EC official underlined that taxes on labour had already been extraordinarily high in the country before the latest austerity pact became effective. He stressed that there were tax measures which cause worse risks for a country’s economic strength than others – and criticised the SPÖ-ÖVP government for concentrating on jacking up the latter.

Earlier this month, Bernhard Felderer of the Austrian Institute for Advanced Studies (IHS) claimed that the austerity package would not seriously harm the domestic economy. Felderer said he saw no immediate risks for positive developments – and dismissed fears that Austrians could soon earn less because of a possible move to intensified austerity by their employers.