Austrian Finance Chief Quits as Taxes Strain Government

Austrian Finance Minister Michael Spindelegger resigned in a conflict over tax policy, exposing strains in the country’s eight-month-old government.

Spindelegger, whose People’s Party is the junior coalition partner, opposed efforts by Chancellor Werner Faymann to raise taxes on the wealthy to fund tax relief for low incomes. He resigned today after senior members of his party urged him to back tax cuts for low earners. Spindelegger also quit as vice chancellor and party chief.

“When there’s no more cohesion, it’s time to pass the rudder,” he said at a news conference in Vienna, evoking Germany’s focus on debt reduction as a model for Austria. “We should be moving in the direction of Berlin, not Athens.”

Faymann, whose second-term government has been in office since December, didn’t present a successor, though he rejected calls by the nationalist Freedom Party to schedule early elections. The yield on Austria’s benchmark 10-year bond fell.

Austrians have the third-highest tax rate among industrial nations, paying 49 percent of their income to the government. While Faymann wants to complete his tax overhaul this year, Spindelegger rejected any changes before 2016.

Party Pressure

The finance minister had come under increasing pressure from party members who favor tax reform and wouldn’t rule out higher rates for wealthy individuals. Polls suggest declining voter support for the People’s Party, which fell to less than 20 percent in a Gallup survey this month.

“Austria doesn’t have a revenue problem, it has a spending problem,” Peter Brezinschek, chief economist at Raiffeisen Bank International AG, said in a telephone interview.

Spindelegger took on investors in July by backing legislation to impose losses on holders of state-guaranteed debt owed by nationalized Hypo Alpe-Adria-Bank International AG. Investors, including the World Bank, face 890 million euros ($1.2 billion) of losses and may challenge the move in court.

Economy Minister Reinhold Mitterlehner was named to follow Spindelegger as People’s Party head in an emergency meeting in Vienna today. Mitterlehner told Austrian TV broadcaster ORF that new finance minister will be chosen by next Sept. 2. There are “serious arguments” in favor of separating the roles again, he said.

Fraying Coalition

The Freedom Party, which has gained in the polls since national elections in September, wants early elections, its leader Heinz-Christian Strache said today. The party has led recent polls with more than 25 percent of voter support.

Austria’s next scheduled general election is due in 2018.

“I’m working under the assumption that the coalition will last until 2018,” Faymann said, according to the Austrian Press Agency.

The so-called grand coalition of Social Democrats and People’s Party, which has ruled Austria for 43 of the last 68 years, is fraying over its inability to enact reforms to the tax and educational systems. Both parties emerged from the last election with their worst results since World War II.

Spindelegger’s exit probably won’t cause the government to break up, Unicredit Bank Austria AG analysts including economist Stefan Bruckbauer said in a note today.

“Austria has sound key economic data, with a structural deficit of only 1 percent, the lowest unemployment rate in the euro area and as in the past, a competitive economy,” according to the note.

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