Austria: Set for change of course in upcoming federal elections
September 26, 2017
Austria’s parliamentary elections, to be held on 15 October, are expected to yield a right-leaning majority that could deliver the Chancellorship to Sebastian Kurz, chairman of the conservative Austrian People’s Party (ÖVP) and currently the Federal Minister for Europe, Integration and Foreign Affairs in the coalition government headed by Christian Kern. Kern is also the leader of the Social Democratic Party of Austria (SPÖ). A Kurz Chancellorship is likely to entail a rightward shift in economic policy: Kurz has promised to cut taxes and reduce the size of government, while taking a hard line on immigration—positions that are compatible with the right-wing Freedom Party of Austria (FPÖ) that is expected to come in second place.
These economic policies would not be expected to boost growth in the short term, as any income gains for households are expected to be mitigated by higher inflation, and government expenditure growth is expected to slow. In the long term, a regulatory and tax environment friendlier to business could deliver higher investment levels. A tougher stance on immigration could, however, counteract some of these positive effects, since a more homogenous labor market would fail to deliver the productivity gains necessary to fueling higher incomes.
Sebastian Kurz has changed the fortunes of the conservative ÖVP and has emerged the star of these snap elections, which were called earlier this year following the collapse of the SPÖ-ÖVP coalition led by Kern. Kurz rebranded the ÖVP’s image and focused the campaign on himself, leading the party to shoot up to first place in the polls. His meteoric rise has come at the expense of the right-wing FPÖ. By railing against the EU and immigration, Kurz has been able to monopolize the FPÖ’s favored themes, while giving them a sheen of respectability. The campaign’s focus on identity issues has hurt Chancellor Kern’s chances, and his SPÖ party has been dropping in the polls. Kern has already announced that the SPÖ would not join a coalition as a junior partner, leaving the field clear for a right-leaning ÖVP-FPÖ coalition. Current poll numbers do not suggest that an SPÖ-led coalition of smaller parties, such as with the liberal NEOS or the Greens, would be feasible.
Author: Christopher Mc Innes, Economist