Austria: A fiscal gamble - ING

Inga Fechner, Economist at ING, points out that after three days of parliamentary discussion, the Austrian budget for 2018 and 2019 has finally been adopted with the votes of the government parties as the new government is trying to square the circle by presenting fiscal plans which include expenditure cuts, tax relief and a fiscal surplus.

Key Quotes

“To reach its goal, the Austrian government seems to be relying on very (if not overly) optimistic growth scenario. A bit of a gamble.”

“Expenditure cuts and tax relief

Major expenditure cuts will be made in the area of asylum and migration by reducing spending for integration measures and guaranteed minimum income for refugees. Administrative costs are to be reduced by tackling unused over-budgeted positions without curtailing public services. Also, previous initiatives like an employment scheme for people aged 50 or older and infrastructure investments will be scaled back (total planned reduction of up to 800mln euro).”

“Are the government's plans realistic?

• While the government aims at a fiscal deficit of 0.4% GDP this year, 2019 should be the first year with a small fiscal surplus since 1974, at least according to the government’s plans.
• However, as much as we like the idea of magically squaring a circle, the government’s plans to combine fiscal consolidation and tax relief is to a large extent built on wishful thinking. The sharp upward revision of the growth assumptions (from 1.8% to 3.2% for 2018 and from 1.7% to 2.2%) is clearly benefiting the government’s attempt to square the circle. A risky game as the new GDP forecasts are higher than consensus forecasts and our own assessment.
• Given that the government’s forecasts are even a bit higher than the already optimistic European Commission forecasts, selling the new plans to Brussels will not be an easy task.”