Due to the increase in the real income of the Austrian population in the next two years, Gabriel Felbermayr justifies his confidence in the recovery of the economy. The head of the Austrian Institute for Economic Research (WIFO) attributes this to high wage agreements, the effects of eco-social tax reform and the abolition of the cold progression, which would support consumption, said Felbermayr in the Ö1 series “Im Journal zu Gast”.
The economist sees a problem in the fact that the population’s expectations are being frustrated. This can lead to political polarization. So far, however, the government’s measures have had an effect. For example, the burdens caused by high inflation for around 20 percent of the lowest incomes were offset or even slightly overcompensated by support, says the economist for calculations by the National Bank and the budgetary service of Parliament.
February/March: Inflation up to 9.9%
The government measures would have had an effect. But the collective bargaining partners “did a good job,” Felbermayr said in an interview. Following are the collective bargaining negotiations for the electrical industry in the spring. The inflation rate will be between 9.2 and 9.3% in February/March. But then there is no longer any need for large transfers, as inflation has already been compensated for.
Save, because the next crisis “will come”
However, it will remain expensive for the state. Felbermayr assumes that Energy Cost Budget 2 will cost about 1 to 1.5 percent of GDP. In addition, one or another measure will be extended due to political pressure. But the state cannot fail to meet the Maastricht criteria for new long-term loans. “We hope that the next crisis will come late, but it will come. And that’s when you need the fiscal break,” said the head of Wifo. For now, however, the debt ratio is falling despite new loans. High inflation devalues the debt. However, this is a dangerous game as it would also increase expenses. Fiscal restraint is therefore necessary.
tax refining
When it comes to spending, the Wifo boss refers to climate-damaging subsidies, which amount to €5-6 billion a year. The tax needs to be changed, but the tax burden does not need to be increased. This should create incentives to work longer. And there would be duplication in the tax system. In addition, tax loopholes would have to be closed. Wealth and inheritance taxes also need to be considered.
According to Felbermayr, ancillary wage costs should also be reduced. “Here we are almost world champions”, observes the economist.
When it comes to energy prices, give the public a clean slate
Politicians must communicate more clearly that higher energy prices are expected in the future. This will only change when enough renewable energy is available. You have to explain to the population that climate policy is also exhausting. Austria has a big advantage through hydropower. But when it comes to climate targets, you need to be more decisive, as Germany has demonstrated in the LNG sector. However, politicians are having difficulty approving new projects because they fear public resistance, Felbermayr said. But decarbonization and dealing with the war in Ukraine also cost money.
A rethink is also needed when it comes to immigration. Europe must protect its borders and determine who comes to Europe. But a clear concept of immigration, such as the Canadian model, and a corresponding immigration culture are needed.