Anyone who wants to govern successfully must not go into debt. Don’t spend more than you earn, keep a balanced budget, in short: the black zero, it has to be there. So that our children and grandchildren do not have to bear the burden later, so the reason. But as rigidly rulers stuck to this condition for years, they suddenly had to abandon it this year. The corona virus paralyzed economic life and the state had to intervene. Since then, he has been distributing grants worth billions, vouching for loans, lowering taxes and fees, and borrowing more than it has been since the Second World War.
At the end of the second quarter, the public debt level in Austria was 315.7 billion euros, at the end of 2019 it was 280.3 billion euros. The debt ratio, i.e. the ratio of national debt to gross domestic product (GDP), rose to 82.6 percent; at the end of 2019 it was still 70.5 percent of GDP. The Austrian National Bank (OeNB) forecasts that the budget deficit is set to rise to 9.2 percent of GDP by the end of 2020. But not only this year, but also in the next, there will probably be a red minus.
So is the black zero a history book case? Can a state go into debt for years without going broke? Do the debts have to be paid back? And if so, who should pay it? There is no single answer to these questions. Economists and parties have different views and proposed solutions on how the state could get out of the pandemic. The “Wiener Zeitung” spoke to all five parliamentary parties and three economists and compiled their proposals:
- ÖVP: economic growth without new taxes
The budget for 2020 and 2021 for the Chancellor Party is clearly shaped by the Corona crisis. From 2022, however, there should be a “normal budget” again: a budget in which the black zero is again in the foreground. After all, this policy has proven its worth, according to the ÖVP: The balanced budgets of recent years are now bearing fruit. Austria is highly regarded on the international financial capital market and can therefore borrow money cheaply.
The ÖVP wants to get out of debt with economic growth. A bundle of measures is needed, such as strengthening companies’ equity, industry-specific and sustainable investment incentives and boosting purchasing power through comprehensive employment programs in the course of the economic phase. How exactly these measures might look remains to be seen. One thing is certain, however: the ÖVP is against any new taxes.
- SPÖ: millionaire tax and digital tax
The largest opposition party points to the high costs of unemployment: According to the SPÖ, 100,000 more unemployed automatically mean 3 billion euros more debt. But how can this be prevented? The Social Democrats want to focus on a tax reform for lower and middle incomes. You are demanding a collective agreement and tax-free minimum wage of 1,700 euros. In addition, unemployment benefits should be increased.
The comrades would reduce the debts by means of millionaires tax, digital tax, financial transaction tax, EU-wide minimum corporate tax rates, a solidarity tax from online corporations and an unlimited top tax rate of 55 percent for incomes from 1 million euros.
- FPÖ: haircut and administrative reform
We would have to say goodbye to the black zero in the next few years, according to the FPÖ. The Freedom Party is demanding a haircut for bridging loans. In addition, there should be no tax increases, as these would burden the economy even more.
To cut spending, the blues are once again proposing administrative reform. How exactly this could look like, one does not want to reveal. Rather, all parties should sit down and think without ideological blinkers. The amalgamation of municipalities in Styria is suggested as a reform example. There is also a possibility for less government spending with pensions. The old-age provision should be an insurance system that is self-sustaining and not – as is currently the case – co-financed by the federal government.
- Greens: wealth tax and inheritance tax
Even before the crisis, it needed a fair contribution from the wealthy, but that will apply all the more after the crisis, say the Greens. In addition to the overdue reform of property and inheritance tax, a one-time solidarity tax from millionaires, such as in Argentina, is also an option. Greater taxation of environmentally harmful behavior is urgently needed. No option for the Greens are higher direct burdens on the small and medium-sized wages that have just been released.
- Neos: tax cut and CO2-Pricing
For a budgetary consolidation growth is above all necessary, is the motto of the Neos. Accordingly, expenditures for crisis management would have to be invested in areas that would generate future growth, i.e. in digitization, climate, infrastructure and education. A drastic reduction in ancillary wage costs and income tax, the abolition of the so-called cold progression and consistent CO are necessary2-Pricing, so the Neos.
They want to finance these measures by reducing expenditure. This requires far-reaching reforms of the major budgetary items: pensions, care, health and administration. The Pinky calculate that this could save around 13 billion euros per year.
EU supports one third of its economic output
By July, the EU states had taken 1,250 fiscal policy measures worth EUR 3.5 trillion. The EU Court of Auditors has calculated that this corresponds to 27 percent of the EU’s economic output (GDP). Most of the measures are job retention programs and liquidity support.
Up to this point in time, seven euro countries had met the Maastricht criteria – according to which public debt must not exceed 60 percent of GDP. Austria is not one of them with 82.6 percent. In a comparison of all 27 EU countries, the republic appears among the top 10 most indebted countries (2nd quarter, Eurostat).
In the meantime, the debt in Austria has grown to 83.5 percent of GDP. For economist Margit Schratzenstaller from the Wifo business institute, the current sharp rise in debt is no cause for concern. Austria is getting into debt on very favorable terms, she explains. “The rising debts will therefore not lead to any additional expenditure on interest. On the contrary: this year, interest expenditure will reach a historically low level despite record new indebtedness and debt levels.”
The cause: As in previous years and in the next few years, a number of old loans will expire. These had a relatively high interest rate and are now being refinanced through new debt, for which the interest costs are practically zero. “So the considerable new borrowing does not currently limit the state’s budgetary leeway,” explains the economist. In their view, there is therefore no urgent need to reduce debt. At least not right away.
As soon as the corona crisis has been overcome, however, a long-term reduction in national debt should be sought. But even then, no hasty and short-term consolidation packages should be implemented. Instead, Schratzenstaller advises long-term reforms with a focus on ecologically and socially sustainable, stable development of growth and employment. Specifically: The high taxes on labor should be offset by environmentally-related taxes, income from property tax and an inheritance tax as well as the reduction of tax exemptions and contribute to growing out of debt.
Get out of debt quickly
In contrast to Schratzenstaller, things cannot go fast enough for Monika Köppl-Turyna when it comes to reducing debt. “We should quickly return to the black zero,” says the head of the economic research institute EcoAustria. “The debt is so high that there is no other option,” she explains. “If we don’t pay them back, we’ll take the leeway for coming crises, which can then no longer be cushioned.” There is also a threat of inflation, and the money would then be worth less and less. The European Central Bank (ECB) cannot therefore print an infinite amount of money. From Köppl-Turyna’s point of view, this monetary policy is already leading to inequality. She points to the real estate sector, where house prices are rising sharply.
According to the economist, there should be significantly less expenditure in the areas of pensions and federalism: “A quarter of the federal budget goes to financing pensions,” says the economist. In order for the pension system to be self-sustaining, she considers an increase in the retirement age to be necessary. At the same time, she calls for women to be empowered in the labor market. Federalism is also too expensive for her: “The federal states do not generate any income, instead they generate a lot of expenditure.” She also criticizes the lack of control options, for example in the case of state subsidies: “Federalism only works if it is efficient.”
The limit is the inflation dynamics
The state borrows itself mainly through government bonds, explains Klaus Prettner, economist at the Vienna University of Economics and Business. The government sells the bonds worldwide to all those persons or institutions, such as banks and pension insurance companies, who are willing to hold them at the given interest rate. “So this interest rate is the price a state has to pay for its debt,” says Prettner.
There is currently a very high demand for government bonds. They are seen as a safe form of investment, which means that the price of new borrowing falls and costs the state relatively little. In some countries, such as Germany, the interest rate is even negative. Investors are now paying to be able to invest their money in safe government bonds and not go into the riskier market for corporate bonds or stocks. However, the government must repay these debts converted into government bonds as soon as they become due and the previously agreed term has expired.
According to Prettner, there are two options for servicing government bonds: Either the state pays and the debt as a percentage of GDP falls. Or the state serves the maturing government bonds by issuing new government bonds – and the debt remains. “It is therefore possible to have a solvent state that has a permanent debt level of, for example, 80 percent of GDP and never reduces it,” explains the economist.
But when does the state have to reduce its debt? As long as inflation is low, the ECB can continue to print fresh money. However, if too much money is printed at any time, this can lead to high inflation or bubble formation. Then the central bank would have to stop its expansionary monetary policy and interest rates would rise. In this scenario, one group of countries in particular would have a problem: those with a high level of debt.
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