Austria Agrees on 26.5 Billion Euros of Budget Cuts by 2016

Austria’s government agreed on pension and spending cuts and tax increases that will cut the Alpine republic’s deficit an accumulated 26.5 billion euros ($35 billion) by 2016.

“We will have a balanced budget again in 2016,” Chancellor Werner Faymann, who leads the coalition government of Social Democrats and the pro-business People’s Party, said at a press conference in Vienna, broadcast live in Austrian state television ORF. About 76 percent of that is due to cuts, while 24 percent is because of new or increased taxes.

Austria, which lost its AAA rating at Standard & Poor’s last month, is aiming to narrow its deficit to comply with balanced-budget rules agreed among euro-area leaders last month. The country’s budget deficit will fall to 0.6 percent of gross domestic product by 2016, from 3.1 percent last year, according to the plan. Debt, which amounted to 72.2 percent of GDP in 2011, will widen to 75.4 percent in 2014 before narrowing to 71 percent in 2016.

Finance Minister Maria Fekter told Austria Press Agency that she hopes the measures will allow Austria to regain its AAA rating at S&P.

Pensions, Civil Servants

The plan includes 7.26 billion euros of savings because of stricter rules for early retirement and lower pensions, about 2.5 billion euros saved on pay and hiring freezes for civil servants and about 440 million-euro tax surcharge for top earners. Additional measures include lower investments in infrastructure, health care and at the state-owned railway company, an end to double subsidies from regional and federal agencies and closing tax loopholes including an exemptions for real estate gains and tax benefits for gasoline acquired by farmers.

The measures also include potential revenue of a tax on financial transactions within the European Union as of 2014 and taxes on undeclared Austrian funds in Swiss accounts, which should be levied on the basis of a treaty that still needs to be agreed on with Switzerland.

Austria’s economy may continue to stagnate in the first half of this year, Wifo economic research institute, which compiles gross domestic product figures for the Alpine republic’s government, said yesterday.

While Austria’s economic slowdown this year will be more abrupt than forecast earlier, the country is unlikely to see more than one negative quarter this year, Wifo said Dec. 21. Gross domestic product is expected to rise 0.4 percent, the group said, down from a September prediction of 0.8 percent growth, and 1.8 percent in July.

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