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Austria Postpones Debt Brake Vote

by Ulrika Lomas,, Brussels

09 December 2011

The Austrian government has been forced to postpone a decision on anchoring a debt brake rule in the country’s constitution until next year, after it failed to achieve the two-thirds majority required for a constitutional change in the National Council.

Despite an urgent plea for support from both ruling parties, the Social Democrats and the Austrian People’s Party, all three opposition parties, the Green Party, the Alliance for the Future of Austria and the Freedom Party of Austria, voted against the plans.

Instead, during its last sitting, parliament merely adopted the law providing for the debt brake rule, by a simple majority.

According to a spokesman from the finance ministry, the government has now referred the matter to a constitutional committee, in a bid to convince opposition parties of the need to adopt the plans, all too aware that credit rating agencies are closely following progress and eagerly awaiting the outcome.

At the beginning of the month, following intense negotiations in Salzburg, regional finance ministers united in principle on government plans to anchor a debt brake rule in the country’s constitution from 2017.

Within the framework of the discussions, the federal states gave their commitment to ensuring in future transparent and efficient budgetary management, comparable with that of the federal government. It was agreed that debt limits together with a multi-annual financial plan would also be set in the constitution.

In accordance with the plans, a structural deficit of 0.1% of gross domestic product (GDP) was considered balanced as regards state and local budgets, whereas a structural deficit of 0.35% of GDP was considered balanced as regards the federal government budget.

The Austrian finance ministry noted at the time that although the fixed structural deficit targets may be exceeded, efforts must be made subsequently to return to the constitutional requirements. The ministry pointed out that an action plan will need to be submitted in the event that the structural deficit reaches 0.35% in the case of the federal states or localities, and 1.25% in the case of the federal government.

The ministry explained that by way of compromise, it was agreed during the discussions that each federal state would be responsible for adhering to the requirements of the debt brake rule, and accountable for failing to do so. A consensus on providing for specific exceptions to the rules in the event of a natural disaster or an economic crisis was also achieved, the ministry added.

Commenting on the outcome of the negotiations, Austria’s Finance Minister Maria Fekter underscored that the agreement marked an important step in the right direction, sending out a crucial signal to the financial markets as regards the country’s commitment to stability and to a future-orientated economy, determined to address the growing debt mountain.

TAGS: tax | fiscal policy | law | budget | Austria

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