Austria: Grand Coalition saves itself with a package of measures called “Pro Austria”

After days of negotiations, the SPÖ and the ÖVP, the two parties in coalition, managed to agree on a joint agenda for the remaining one and a half years of the current legislative period. In this way, the coalition partners managed to overcome the political rift which had developed. Had the negotiations failed, the risk of the Grand Coalition breaking down prematurely would have increased greatly. The result would presumably have been new elections, an outcome that neither of the two formerly large popular parties would have wanted to see. In this case, the right-wing populist FPÖ would have had a good chance of emerging as the strongest party in parliament, thereby gaining the right to lead any future government.

Federal Chancellor and SPÖ Chairman Kern and ÖVP Chairman Mitterlehner have now presented a joint (economic) programme that reflects the interests of both the Social Democrats and the Conservatives. The basis for this was the “Plan A” agenda the Social Democrats tabled a few weeks ago and the Conservative counter-proposal, the “Pact for Austria”. Kern can above all claim to be the one who launched the “employment bonus”, whereby companies get financial incentives if they hire new staff. This was the greatest victory at the negotiating table, alongside concessions as regards immigration, but in return the ÖVP was able to prevent tax increases. At the same time it landed a real coup, as the “cold progression” in the tax scale will be sharply curbed from 2019 onwards. The regular adjustment of tax rates to reflect inflation is intended to ease the burden on SMEs and thus boost Austrians’ purchasing power. This step really stands out when compared to Germany, where the federal government in Berlin finds it hard to close the lid on this lucrative, but dubious source of revenue.

Kern’s government is still pretty vague as regards financing the EUR 4 billion reform agenda. While the bulk is to be covered by cuts, the remaining costs, so the hope, will be sourced from faster economic growth – an expectation that seems very optimistic in the current economic situation, or one which at least entails greater uncertainty.

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