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Austrian Economics Minister Rules Out CoC Stimulus Proposals

by Ulrika Lomas, Tax-News.com, Brussels

28 August 2009

Austrian Chamber of Commerce President Christoph Leitl has published a package of fiscal stimulus proposals at the Alpbach Forum in Tyrol. His package was welcomed and supported by Friedrich Schneider, Professor of Economics at the University of Linz, but received with rather less enthusiasm by Reinhold Mitterlehner, Minister of Economics.

Leitl's package had an estimated annual price tag of EUR650m, but was designed to bring rapid returns, estimated at EUR1.4bn.

In view of the slow and bumpy road to recovery forecast by experts, Leitl felt that the economy needed a jump start but without further increasing the national debt. The package is summarized as follows:

  • A so-called 'builder's bonus' designed to promote employment and discourage the black economy, similar to one successfully operated in Germany. For house renovation work up to EUR6,000 per household, 20% of the builder's income, up to EUR1,200, would go tax-free. The estimated EUR150m cost of the tax concession would be offset by reduction of 'black economy' revenue losses of EUR400m. Leitl suggested it be tried for 2 years in 2010/11 then reevaluated.
  • Free thermal insulation for 78,000 households annually at a cost of EUR300m; this would stimulate EUR2bn of spending in the private sector and thereby generate new tax revenue of EUR1bn(sic) in taxes and social contributions and save EUR6-9m annually in Kyoto CO2 penalties.
  • Reinstatement of the 'incremental investment tax credit'. Leitl stated that EUR250m of the existing budget for capital allowances should be earmarked for this tax credit, so that investment incentives are targeted more precisely at incremental investment.
  • Abolition of stamp duties on credit agreements at a cost of EUR200m annually.
  • Support of Austrian transport industry of EUR25m per year by reducing lorry duties to be equal to the lowest rates in the EU. Leitl identified the Austrian transport industry as particularly hard-pressed and would also like to see incentives to introduce more environmentally friendly lorries.

In response to these proposals, Mitterlehner ruled out further fiscal stimulus beyond what had already been done for the present year. He pointed out that Austria had already introduced two fiscal stimulus packages in the last twelve months and Germany and Switzerland had decided not to introduce any further packages for their economies. The minister said that the existing measures were good but needed time to take effect. It would be like a 'voodoo economy', if everything was expected to happen immediately.

Mitterlehner was interested in discussing the ideas further, especially those aimed at reducing the 'black economy', but there were no concrete plans as yet. Professor Schneider was also a great supporter of measures to reduce the black economy by carrot as well as by stick, and confirmed the efficacy of the incentives as practised in Germany.

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