Austria announces ‘post-crisis’ budget with major tax reforms

Austrian Finance Minister Gernot Blümel
Austrian Finance Minister Gernot Blümel speaks to journalists on Wednesday after the draft budget was announced. Photo: Joe Klamar/AFP
Austria's Finance Minister presented the country's draft budget on Wednesday, with plans for government spending of €99 billion.

While the previous year’s budget was a “response to the crisis”, Austrian Finance Minister Gernot Blümel said the proposals for 2022 were focused on “revival, stability and sustainability”.

He used the speech as a chance to encourage residents of Austria to get vaccinated against Covid-19, saying that vaccination was crucial for societal and economic recovery.

“The jab can not only save your own life and others’, but also businesses and jobs,” said Blümel.

Cut deficit

The government plans to cut its budget deficit from 6 percent during 2021 to 2.3 percent in the coming year, to reach only 0.4 percent by 2025. Blümel said that reducing this debt was a way of preparing the country for future crises, saying it was “legitimate” to increase debts during a crisis but not appropriate to maintain these high debts during a growth phase.

To reach this ambitious goal, the government is helped by European Central Bank policies which mean that despite the currently high level of debt, the amount that Austria pays annually in interest on its loan repayments is almost half the figure it was a decade ago. The drop in interest payments means the state has an extra €4 billion to spend compared to ten years ago.

Tax reforms

This means that there are no plans for significant austerity policies in order to reduce the deficit. Instead, the government is planning a so-called eco-social tax reform that will leave the average Austrian resident with (slightly) more money in their pocket.

Blümel called these plans “the biggest transformation of the tax system of the Second Republic [since 1955]”.

From July 2022, income taxes will be reduced along with health insurance contribution amounts for lower earners, while Austria’s ‘family bonus’ will be increased, at a cost of €1.5 billion for the state.

These tax cuts will offset a carbon tax, starting at €30 per ton of carbon dioxide, to rise to €55 by 2025. 

Other measures

Expenditure on Covid-19 crisis measures will be reduced significantly in the 2022 budget. The amount to be spent on coping with the pandemic and the resulting economic crisis makes up €8.7 billion, still a large sum but around half of the figure for 2021.

Austria’s Economic Research Institute is currently forecasting that the unemployment rate will return to the same level as 2019, reducing the need for the short-term measures that have been put in place to support those whose jobs were affected by the pandemic, which means the government is switching its focus to the long-term unemployed,  who may face different challenges on the labour market, earmarking €250 million in the 2022 budget to support this group.

Beyond Covid, the conservative-green government plans to invest in dealing with long-term crises, with €1.72 billion set aside for climate and environmental policies (about 2.5 times as much as in the previous budget) for example, and €10 million for policies aimed at preventing violence against women and supporting victims.

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