In terms of the budget, a deficit of three percent of GDP is reportedly being targeted. Debt is likely to rise to EUR 367 billion, but its share of gross domestic product is expected to fall from 78.3 to 76.7 percent. Interest expenses are expected to increase from EUR 4.3 billion to almost EUR 9 billion in 2023.
A first debate on the draft budget will follow on Thursday. From November 4th to 11th there will be debates in the National Council committees, starting as usual with a hearing with experts. The budget for 2023 should be available for approval in the National Council on November 17th.
Debt costs have risen sharply
In the previous year, Gernot Blümel (ÖVP) had held the budget speech. The budget planned by Brunner is burdened by high debts that have been accumulated in the past pandemic years through the generous CoV aid and the sharp rise in interest rates. Added to this are anti-inflation packages worth billions, enormous inflation and stagnant economic growth.
Due to interest rate increases by the ECB in the fight against inflation, the cost of Austria’s debt has increased significantly this year. In January, Austria paid 0.09 percent for ten-year bonds, the current rate is 2.68 percent. From January to August 2021, the federal government paid 1.9 billion euros in interest on its debt; in the same period of the current year, federal payments for interest payments rose to 3.9 billion euros. This corresponds to an increase of over 100 percent.
The Finance Minister has set the goal of reducing debt and bringing the debt ratio back towards 70 percent of GDP in the coming years. This is necessary, because the outlook for Austria is viewed more critically, and “that increases the cost of our debt,” said Brunner recently.
Energy prices as a major uncertainty factor
Given the difficult economic situation and the escalating war in Ukraine, the budget is fraught with uncertainty. Inflation will not only remain high in 2023 and the economic outlook is gloomy. The development of energy prices is a major uncertainty factor. Some experts believe that the energy cost subsidy decided by the government for companies will not be enough and that a price cap is necessary.
Debates about Austria’s budget
The government presented a package worth billions for a climate-friendly restructuring of Austrian industry and received a lot of criticism from the SPÖ and NEOS regarding the planning of the package.
The Corporate Energy Cost Subsidy Act supports energy-intensive companies with a total of 1.3 billion euros. Companies whose energy costs account for at least three percent of their turnover can apply for the subsidy from mid-November – the money should flow this year. Funding is only given to those who do without heating pads and shop lighting at night.
Inflation is reflected in all areas
Critics accuse the government of doing too little overall to curb inflation and relying only on relief measures. In 2023, the abolition of cold progression alone will cost the state 1.5 billion euros.
At the same time, inflation is reflected in all areas of the budget: the salaries of federal employees, pensions, material expenses and all procurements. Schools and universities, for example, are already moaning about heating costs and are demanding more funding. For pensions alone, EUR 2.7 billion more has been budgeted for the coming year, the care reform will have an impact of EUR 0.8 billion, and in 2024 almost EUR 500 million more will be budgeted for foreign affairs and asylum.
The Ministry of the Interior and the Armed Forces also get more
The Ministry of the Interior will also get 400 million euros more, part of which will be invested in strengthening resilience and crisis prevention as well as cyber security. According to reports, however, more than half is used to compensate for inflation, i.e. for the salaries of police officers and other employees.
In view of the Ukraine war, there is more money for the federal army. Next year there will be an additional EUR 680 million, which corresponds to an increase from the current EUR 2.64 billion (0.6 percent of GDP) to EUR 3.32 billion (0.7 percent of GDP). But here, too, inflation is having an impact: 100 million of these are needed to compensate for this.
In 2024 the budget will increase to 3.7 billion, in 2025 it will be 4.2 billion and in 2026 4.7 billion euros. In total, it is five billion euros by 2026. The money is to be invested in the personal protection of the soldiers, mobility, tanks and air defense.
From cold progression to social benefits
A number of major laws will also be passed this week. Among other things, the cold progression is abolished, the pension increase for 2023 and the electricity price cap are agreed. When it comes to cold progression, it is currently the case that wage increases can lead to people falling into a higher tax bracket and in the end not having more money in real terms than before.
This effect is now being combated by adjusting the tax brackets each year to reflect inflation – but only by two-thirds. What the government does with the remaining additional revenue is up to it. For the time being, people who pay little income tax should be given above-average relief. In the future, family and social benefits will also be automatically valued annually. These include family allowance, childcare allowance and study allowance.
Pension increase and electricity price cap
The pensions, which will not only be increased by the legally prescribed 5.8 percent, will be helped with a one-time payment in the fall. The payment should primarily favor small and medium-sized references. The compensatory supplement, de facto the minimum pension, will be increased by around ten percent.
The topic of energy prices is also dealt with in the National Council – in the form of an electricity price cap. By mid-2024, 80 percent of a household’s average consumption will be subsidised. Up to this limit only the pre-crisis price has to be paid, beyond that the market price. Businesses are also supported. The budget for the energy cost subsidy will be increased from EUR 450 million to EUR 1.3 billion. Energy-saving companies that spend at least three percent of their sales on electricity, gas and fuel are supported.
Leichtfried: Self-abandonment by the federal government
The opposition does not expect much good from the 2023 federal budget. SPÖ vice-club leader Jörg Leichtfried spoke at a press conference on Tuesday of a budgetary, financial and economic shambles that the ÖVP and the Greens left behind in subsequent governments. NEOS, in turn, asked the government to “pack up the watering can”.
In view of what is known about the budget, said Leichtfried, only one conclusion can be drawn, namely that neither the ÖVP nor the Greens expect to be represented in the next government. Taxpayers’ money is wasted to an unprecedented degree, and without effect. So six billion euros were used in the face of inflation. “And what has become cheaper? Nothing has become cheaper.” His conclusion: “If the budget is politics cast in figures, that is the self-abandonment of the federal government.”
Call for a gas price cap
Instead of price reduction measures, the government is making one-off payments that have already fizzled out. He pointed to the rising inflation rate and warnings from economic researchers of stagflation. A cap on gas prices is therefore necessary, and Austria will have to follow suit. A VAT reduction for food and energy is also necessary.
The CO2 tax, including the increase coming next year, must be suspended. Action must also be taken against the excessive price of petrol. “What does the Economics Minister do apart from sleeping in the pendulum clock?” asked Leichtfried.
NEOS against watering can
NEOS was also stumped by the government’s spending. “Anyone who thinks knows that at some point a watering can is empty,” said business spokesman Gerald Loacker at a press conference. NEOS boss Beate Meinl-Reisinger called for increased investments in digitization, renewable energies and research and development.
According to Meinl-Reisinger, of the around twelve billion euros in aid measures, just 400 million euros went specifically to poorer households. The vast majority of the funds were simply distributed all around, she criticized the design of measures such as climate bonus and electricity price brake. Just 90 million euros have been dedicated to investments such as promoting the expansion of renewable energies. “That’s not sustainable, that’s absolutely populist politics with the watering can, which will cost us dearly,” said Meinl-Reisinger.
The NEOS boss also expects the finance minister to stand up and say: “I don’t have an ATM.” What you spend, you have to take back. Loacker expects the Minister of Finance to lower non-wage labor costs more sharply and to abolish cold progression retrospectively from January 1, 2022. In addition, the tax allowance for overtime should be increased. Loacker also called for a tax credit for anyone willing to work full-time and a halving of payroll taxes for those over 65.