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Social Democrats (SP÷) and the Peopleís Party (÷VP) keep discussing the debt brake (pictured: ÷VP boss Michael Spindelegger).

Debt limit negotiations continue

Social Democrats (SPÖ) and the People’s Party (ÖVP) keep discussing the debt brake.

The government coalition wants to turn the tool into a constitutional law. It needs the approval of at least one opposition party in parliament in the coming months to achieve this goal. SPÖ officials and representatives of the ÖVP started meeting today (Tues) after taking a comparably brief Christmas holiday. The Greens announced they would not gather for talks with SPÖ and ÖVP before the coalition sorted out their internal conflicts.

SPÖ and its coalition partner especially disagree about a tax on assets. The Social Democrats are in favour of a higher property tax and a new tax on assets while the ÖVP opposes such ideas. The party of Vice Chancellor Michael Spindelegger said the focus should be on reducing investments to firms close to the state like Federal Railways (ÖBB). It also suggested reforming the Austrian pension system. Spindelegger said people willing to work longer than they had to should be allowed to do so – and financially benefit in contrast to those who opted for early retirement.

The SPÖ reportedly also wanted higher taxes on alcohol while rumour has it that the ÖVP could give up its strict no-go policy to new taxes in case of mineral oil tax rates. Such a measure could be labelled as a carbon emission charge. It would guarantee initial effects on the state budget thanks to wide unwillingness in Austria to give up cars in favour of bicycles and public transport.

The Alliance for the Future of Austria (BZÖ) suggested lowering the maximum tax rate by eight per cent to 42 per cent – an idea the SPÖ was not happy to hear of. The ÖVP signalised support for the suggestion. Freedom Party (FPÖ) leaders are expected to meet with ÖVP whip Karlheinz Kopf for talks in the coming days. Already this morning, SPÖ Chancellor Werner Faymann met with Spindelegger to discuss the government’s fiscal strategy for 2012.

Faymann and Spindelegger eventually agreed that the state’s budget must improve by two billion Euros in 2012. SPÖ Mayor Michael Häupl suggested setting up taxes to achieve 70 per cent of this sum. Faymann initially mentioned 1.5 billion Euros of needed savings before ÖVP Finance Minister Maria Fekter claimed that 2.8 billion Euros were necessary. The government now said two billion Euros were the envisaged sum. Another 800,000 Euros must be contributed by the country’s nine provinces. This decision could mean a reduction of road infrastructure investments and less spending on childcare projects in towns and cities.

SPÖ and ÖVP made clear they would keep fighting for a constitutional debt limit despite Moody’s recent confirmation of Austria’s top credit rating, AAA. The US American rating agency said Austria’s economic situation was solid thanks to the government’s intention of adding the debt brake to the constitution. Fekter said she intended to keep up her attempts to get the opposition onboard. The finance minister underlined that Austria had to pay higher and higher interest rates to cover its debts. The budget deficit rose as well during the crisis.

Former SPÖ Chancellor Franz Vranitzky said the government should focus on creating a complete package of fiscal measures instead of releasing news about their individual tax and austerity plans. Such tactics led to nothing but getting the coalition partner to say no, Vranitzky told Die Presse today. The former SPÖ chairman also warned about spending less on the education sector and research initiatives.

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