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Austria Should Consider New Fiscal Package, Institute Warns

by Ulrika Lomas,, Brussels

17 September 2013

Christian Keuschnigg, Head of the Austrian Institute for Advanced Studies (IHS), has warned Austria's political parties to think carefully about plans to reform taxation in Austria in the next legislative period, insisting that a new fiscal consolidation package will be "unavoidable" if the country is to achieve its medium-term fiscal objectives.

Plans to radically overhaul the tax system should be postponed, Keuschnigg stressed, citing uncertainties regarding precise revenue levels in 2014 and the need for the Government to use billions of euros in taxpayers' money over the next few years to bail out the ailing Hypo Group Alpe Adria.

In the run up to the elections, Austria's main political parties have endeavored to lure voters by pledging in various ways to reduce the fiscal burden on labor, for middle-income earners in Austria in particular, and to lower the tax burden on families. Given that the Hypo Group banking bailout will undoubtedly make a significant dent in the budget, the burden may well put paid to any immediate tax reform plans.

Furthermore, the Austrian Finance Ministry has provided in its budget plan that annual income of around EUR500m (USD665m) will flow from 2014 from a European tax imposed on financial transactions (FTT). Yet the very fate of the levy currently hangs in the balance. Legal experts maintain that plans to introduce the tax in 11 European Union member states, within the framework of enhanced cooperation, are in violation of European law. FTT delays will put a further strain on the Austrian budget.

Austria's Financial State Secretary Andreas Schieder has vehemently ruled out the idea of a new fiscal package, however, adamant that Austria will achieve its 2016 zero deficit target without recourse to additional savings measures.

Austria's ruling coalition parties, the Austrian People's Party (ÖVP) and the Social Democrats (SPÖ) have both made clear that taxpayers will not bear the brunt of the Hypo rescue. While the ÖVP intends to negotiate a contribution from the banks, the SPÖ has advocated that the 25 percent bank tax surcharge be extended beyond 2017.

TAGS: Finance | tax | law | banking | budget | tobin tax | tax rates | Austria | tax breaks | individual income tax | European Union (EU) | Europe

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