Austrians face austerity package and tax hikes

Feb 10, 2012, 13:40 GMT

Vienna - Austria's government on Friday announced budget cuts and higher taxes totalling nearly 27 billion euros (36 billion dollars) over the next five years to balance the budget until 2016.

The budget deficit had risen over the past year as the government spent money to cushion the effects of the global financial and economic crises.

'These costs have to be paid back,' Social Democratic Chancellor Werner Faymann said.

Recent months had shown that it was necessary 'not to wait like Greece, Spain, Portugal, even Italy, until interest rises so high that you are no longer the master of your own budget and have to negotiate with international funds,' he added.

Pensioners and public servants are to bear the brunt of the savings, through lower or deferred pay raises.

The government coalition of Social Democrats (SPOe) and the centre-right People's Party (OeVP) also aims to raise the average retirement age from 58 to 62 by paying early retirees less.

As a symbolic measure with little impact on the budget, the government would like to reduce the number of legislators and ministers by around 10 per cent - but downsizing parliament would need the agreement of the opposition.

Top earners, real estate investors and Austrian companies operating abroad are facing higher taxes.

Opposition parties said that the austerity measures did not contain structural reforms of public administration and the health sector, and that the financial industry and rich people were not taxed enough.

However, there were no calls for strikes or protests, as the state employees union and pensioner representatives were involved in the government negotiations.

The austerity package also includes a plan to scale down construction of the Brenner rail tunnel connecting Austria and Italy along a key trade route through the Alps.

Austria's current budget for 2012 is nearly 74 billion euros for 2012, with an expected deficit of 9 billion euros.

The government has said it aims to lower the deficit to below 3 per cent of gross domestic product this year, in line with eurozone requirements. Last year's rate was 3.4 per cent.

The austerity measures came after rating agency Standard & Poor's stripped Austria of its top ranking last month and the government responded by vowing to reclaim its AAA status.