Austria: Economic policy continuity broadly expected despite unprecedented new coalition government
February 4, 2020
Three months after snap elections were held in September last year, on 7 January President Alexander Van der Bellen swore in an unprecedented new coalition government, consisting of the People’s Party (ÖVP) and the Greens, and thus returning Sebastian Kurz to the chancellorship. Economic policy continuity is largely expected despite the ambitious environmental agenda demanded by the Greens, although there are question marks surrounding the budgeting of these measures.
Sebastian Kurz and his ÖVP will focus on stimulating the slowing economy by lowering income and corporate taxation, while maintaining a firm stance on immigration. Lower taxes should provide a boost to economic growth, which slumped to a four-year low last year; nonetheless, risks remain tilted to the downside owing to external headwinds emanating from softer momentum in Europe, structural issues in Germany’s car sector, Brexit related uncertainty and the Sino-U.S. trade dispute. Meanwhile, the Greens have introduced an ambitious environmental agenda into the coalition plans, centered around achieving carbon neutrality by 2024—10 years ahead of the European Union’s target. The plans also include a host of other initiatives such as a full transition to renewable energy and flight levies.
The ÖVP has emphasized the government will still balance the books despite these costly measures, although this could prove difficult to achieve. As highlighted by Inga Fechner, an economist at ING, “the budgeting of the government’s plans is not yet entirely clear”. This is especially salient given medium-term challenges “such as the sustainability of ageing-related expenditure and Austria’s broader welfare system”, as cited by Scope Ratings.
Author: Jan Lammersen, Economist