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Coalition plans income tax reform

The government considers getting rid of extraordinary tax benefits.

Austrians working in various professions receive 14 salary rates a year instead of 12. Those benefiting from the traditional agreement have to pay just six per cent in taxes on the 13th and 14th income rate. Now speculations have it that the Social Democrats (SPÖ) and the People’s Party (ÖVP) think about scrapping this agreement for everyone receiving 200,000 Euros or more before tax a year.

Reports have it that the ÖVP may rather say yes to such a change of regulations instead of an increase of Austria’s maximum tax rate. The rate – which ranges around 44 per cent to 50 per cent, depending on professions and various criteria – is seen as a rule which "bears resemblance to dispossession", ÖVP whip Karlheinz Kopf told radio broadcaster Ö1 today (Tues).

Kopf’s party has stressed it wanted to concentrate on reducing health and pension sector spending instead of raising any taxes while Chancellor Werner Faymann’s Social Democrats were determined to set up a Europe-wide tax on financial transactions. The left-wing party – which has been part of the Austrian government since 2007 – also plans to increase taxes on alcohol and assets. The creation of a tax on inheritance and property is also part of the SPÖ’s budget concept for the coming years – which will be dominated by a slowdown of economic growth across the continent, according to analysts.

The ÖVP refused to comment on claims that it could give the thumbs up to an increase of income tax on the 13th and 14th monthly salary. ÖVP Finance Minister Maria Fekter said at the weekend that the state and its nine provinces must save 2.8 billion Euros this year. The decision to choose a stricter austerity path forces the government to correct details of its annual budget which was passed in parliament only in October. Detail agreements of the new austerity package are expected to be disclosed in February or March.

Former ÖVP Vorarlberg Governor Herbert Sausgruber – who was succeeded by Markus Wallner last month – welcomed the federal government’s decision to implement a debt limit. He described the move as a "farewell to political fairytales". Speaking about the comparably good economic condition of his home province, the conservative politician said Vorarlberg always abstained from spending less than it possessed. He also expressed acclaim for the province of Styria’s current cost-reduction procedure.

Experts think that a higher tax burden on the 13th and 14th salary rate of public and private sector employees was more likely to come into effect than a tax on substantial assets due to the negative impact such a move would have on Austria’s reputation as a business location. The coalition is tipped to rather agree about a tax on inheritance and real estate than a mandatory fee people who earned a lot could have to pay. ÖVP Lower Austria chief Erwin Pröll and other conservative opinion leaders suggested such a measure for the coming years depending on the development of the recovery. The Social Democrats welcomed Pröll’s suggestion while ÖVP boss Michael Spindelegger was less pleased.

Austria’s government feels the increasing pressure of rating agencies. The alpine state is still rated at AAA but was seen under threat of losing the best-possible rating. However, leading rating agency Moody’s confirmed its AAA estimation for Austria last month – despite the opposition’s refusal to support the SPÖ-ÖVP administration’s attempts to add a debt limit law to the Austrian constitution. Economist Bernhard Felderer said Austria’s economic future strongly depended on the condition of Italy which is one of its key business partners. The Viennese Institute for Economic Research (WIFO) said last month Austria’s economy would grow by 0.4 per cent from 2011 to 2012 before things would improve further in 2013 (plus 1.6 per cent).

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