The new tax reform aims to ease the burden on low-income households while reducing bureaucracy to attract investment. Despite the catchy slogan “Simply Less Tax”, execution seems far from simple.
Reports of the Austrian Government’s new tax reform have flooded local media in the weeks surrounding its announcement by the Turquoise-Blue coalition on April 30. The program, Relief for Austria, claims to simplify the tax law and save Austrians a total of €8.3 bn per year in taxes by 2022.
The reductions will take place in stages beginning in 2020 with a focus on easing income tax for low-income workers, while also lowering corporate income taxes. “Relief for Austria is not just a tax reform. It is a comprehensive program relieving even those who do not pay taxes,” promised Minister of Finance, Hartwig Löger (ÖVP). Some of the program’s key points have already been set in motion, including lowering unemployment insurance contributions and initiating a Family Bonus Plus, a tax deduction of €1,500 per child per year. Income tax rates will also come down, from 25 to 20 percent in 2021, with a second stage to follow in 2022.
The opposition is not convinced: “It’s too little, too late,” argued SPÖ‘s Pamela Rendi-Wagner in a ZiB2 interview, in response to the two year time frame. “Not only are tax payers financing the reform, they are also paying an additional €2.5 bn in the process.” The government insists this reform is without precedent: There are no new taxes, no new debts, and “we are not making policy at the expense of future generations,” said Löger. The coalition claims the reform will be funded by cuts in administrative expenses, but recent Defense Ministry requests for a budget increase suggest it may not be so easy.
“This reform was built on air,” argued SPÖ Financial Spokesman Jan Krainer in an interview with Der Standard: “To finance this, I would expect cuts in pensions, health, and education.” Krainer cites criticism from the EU, IMF and the OECD of Austria’s taxation imbalance – heavy on labor and light on high earners. “There are three mega-topics these days: Rising inequality, digitization and climate change. The tax reform fails on all three.”
A major and long standing issue on tax reform is the kalte Progression, the bracket creep, which allows the government to profit from inflation at the wage earners’ expense. This has been a useful Körbelgeld (bonus) for successive Finance Ministers, allowing the government of the day to offer tax relief without apparently reclaiming it elsewhere. State Secretary Hubert Fuchs (FPÖ) admits that it is unfair, but it has still not been addressed in the current proposals. In an interview with Der Standard May 4, Fuchs elegantly side-stepped the question: “First we must make the tax system more just,” he said. And correcting the bracket creep? “Latest by 2022 discuss how to implement it”
But just two days earlier the same Standard had reported that Kanzler Kurz (ÖVP) had quietly announced he was no longer in favor of eliminating the bracket creep, despite election promises. Governing by coalition is never easy.