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Austria Posts Smaller Than Estimated Budget Deficit on Provinces

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March 28 (Bloomberg) -- Austria’s budget deficit held at 2.5 percent of gross domestic product last year, beating the government’s forecast and keeping it below the European Union’s ceiling.

Austrian provinces narrowed their deficit to 0.1 percent of GDP and municipalities swung to a 0.1 percent surplus last year, partly offsetting costs of bank bailout measures, the statistics office in Vienna said in a statement today. The finance ministry had increased its deficit forecast to 3.1 percent in October, above the EU’s ceiling of 3 percent of GDP, following bank aid.

“I thank the provinces and municipalities for their impressive budgetary discipline that is making a significant contribution to the credibility of the Austrian budget policy,” Finance Minister Maria Fekter said in a statement. “We’re well on our way towards a balanced budget.”

The shrinking deficit of provinces as well as higher tax revenues spare Fekter from presiding over a widening budget gap in a year when Greece, Italy and Spain trim their shortfalls. It also cements the Alpine nation’s space among euro-area countries with the soundest public finances and the lowest refinancing costs, such as Germany, Finland and the Netherlands.

Austria’s 10-year yield, which fell to a record low of 1.634 percent last week, was little changed at 1.68 percent at 11:27 a.m. in London. That’s about 41 basis points more than what Germany has to pay creditors for debt with the same maturity.

Nationalized banks KA Finanz AG, Hypo-Alpe-Adria International AG and Oesterreichische Volksbanken AG each needed more than 1 billion euros of additional aid last year. Including dividends and fees the banks are paying, the aid sparked a hole in public finances equivalent to 0.9 percent of GDP. More funds for KA Finanz and Hypo Alpe are earmarked in the 2013 budget.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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