Austria Politics September 2019

Austria

Austria: Sebastian Kurz's People Party expected to hold onto power in snap election; economic policy continuation expected

September 23, 2019

Austrians will elect a new National Council on 29 September in snap elections. The vote was triggered by a no-confidence vote on 27 May, after the so-called ‘Ibiza scandal’ came to light and the coalition between the far-right Freedom Party’s (FPÖ) and the conservative People’s Party (ÖVP) collapsed. The affair, which chiefly involved the FPÖ‘s top brass, seemingly left support for the far-right party relative unharmed as the party remains locked in a tight battle for second place with the center-left Social Democratic Party (SPÖ) behind Sebastian Kurz’s ÖVP, according to polls. The ÖVP is the clear front runner and is widely expected to win the election, giving Kurz the keys to forming Austria’s next government and probably ensuring economic policy continuity.

The election could result in a renewal of the ÖVP-FPÖ coalition, as no party is seen clinching a majority, with a weakened Freedom Party. Around a fifth of the Austrian electorate is expected to vote for the former junior coalition party despite the high-profile scandal; however, this would be down from the 26.9% of votes won in the last election. Nevertheless, a likely reboot of the coalition should see economic policy largely unchanged, and continuing to focus on reducing the tax burden while keeping government debt and spending in check. On top of previous policy proposals, Kurz stated he wants to reduce social contributions and to introduce a tax-free employee bonus of up to EUR 3,000 to be granted to employees by businesses. Meanwhile, stricter immigration and social benefits rules would also stay in place. A renewed partnership with a weakened FPÖ would likely see more emphasis on the ÖVP’s policies and more ÖVP ministers.

An alternative outcome is the revival of the old ÖVP-SPÖ coalition that governed Austria for much of its post-war history. However, the failure of the last grand coalition makes this combination seem somewhat unlikely as well as potential policy clashes over immigration and workers’ rights. Entering into a coalition with the Social Democrats would also imply a marked change in policy-direction towards to left. The SPÖ is running on a platform to keep the FPÖ out of power, but the drop in support for the Social Democrats is likely to make them uninterested in entering into a union with the conservatives.

Lastly, Kurz had hoped to form a coalition with the liberal NEOS party, but as the liberals are polling in the single digits this combination would fall short of majority support.

Whichever coalition rolls out of the negotiation period will face a less favorable economic backdrop owing to external downside risks. Lingering trade tensions and Brexit uncertainty will continue dragging on international demand for European goods. On the other hand, the domestic economy remains in a relatively good shape with low unemployment and robust growth in disposable incomes. Meanwhile, the government has fiscal space to counter an economic downturn, if it chooses to do so.

FocusEconomics panelists project that the economy will grow 1.6% in 2019, which is unchanged from last month’s estimate. For 2020, the panel expects the economy to expand 1.4%, which down 0.1 percentage points.


Author:, Economist

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