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

Austria's Finance Minister presented the country's draft budget on Wednesday, with plans for government spending of €99 billion.

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

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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AUSTRIAN CITIZENSHIP

Could presidential criticism lead to Austrian citizenship rule changes?

Federal President Alexander Van der Bellen has hit out at Austria's naturalisation process, saying "the hurdles are too high". But how hard is it to get Austrian citizenship - and will the criticism lead to change?

Could presidential criticism lead to Austrian citizenship rule changes?

Austria’s federal president Alexander Van der Bellen, who is eyeing a second term in office in the autumn elections, has said that the hurdles for citizenship are too high in the alpine country.

“Citizenship is a valuable asset. I think the hurdles for obtaining it are too high.”, he said in an interview with the newspaper Kleine Zeitung.

READ ALSO: EXPLAINED: How does Austria’s presidential election work?

Van der Bellen mentioned a case with a German citizen who has lived in Austria for 20 years and cannot obtain dual citizenship: “He can vote neither here nor there. And that is the European Union?”

Austria does not allow for dual citizenship of naturalised citizens except in very few cases (including naturalisation of those who are descendants of Holocaust victims).

This is one of the many hurdles to citizenship in the country.

What makes Austrian citizenship so difficult to get?

Citizenship through naturalisation, meaning you are not the son or daughter of an Austrian citizen, is particularly hard to get.

First of all, the majority of applicants will need to give up any other citizenships they hold. So, a British citizen taking Austrian nationality through marriage or residence time will have to give up their British passport.

READ ALSO: Which European countries have the toughest rules for gaining citizenship?

Besides severing that connection to a home country where people might still have many ties, this can lead to difficulties in matters of inheritance and property ownership, for example.

The naturalisation process is also long and expensive in Austria. In Vienna, the application costs €130. If successful, the new Austrian citizen can expect to pay from € 1,100 to € 1,500 just for the award – that doesn’t include costs with documentation, translation, and issuance of documents such as an Austrian passport.

The length of the process varies, but it can take more than a year for citizenship to be awarded.

The requirements will also be different depending on how long the person is legally an Austrian resident and what is their connection to the country.

READ ALSO: Reader question: Will my children get an Austrian passport if born in Austria?

For example, after 30 years of residence in Austria, you need to prove you are not a danger to the country and that you can support yourself.

You also need to prove German skills and pass a citizenship test.

The minimum amount of time of legal residency after which you can require citizenship is six years for people who fall into specific categories, such as legal and uninterrupted residence in Austria and possession of the citizenship of an EEA state, birth in Austria or German at a B2 level.

Will Austria change its citizenship rules?

It is improbable that there will be any significant changes soon. Despite Van der Bellen’s statements, citizenship laws are not within the federal president’s competence and mostly depend on legislative changes.

The party leading the ruling coalition, ÖVP, is against any changes, claiming that making the process easier would “depreciate” Austrian citizenship.

READ ALSO: ​​Why has naturalisation in Austria doubled in 2022 – and who are the new citizens?

Austria has recently seen a jump in naturalisation numbers, but that can largely be viewed as a one-off phenomenon after changes in the process for descendants of Nazi victims.

While junior partner Greens have been in favour of easing some rules, little is expected to happen with the ÖVP in power. The next parliamentary elections are set for 2024, though. If the SPÖ continues climbing in the polls, an SPÖ-Green coalition could push forward different rules.

Also, if the Red-Green-Yellow ruling coalition in Germany does succeed in easing naturalisation rules in the neighbouring country, Austria could see further pressure for domestic changes.

But that remains to be seen, mainly depending on the 2024 election results.

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