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28/07/2016

Austria’s unwieldy subsidies system continues to cost the country

Euro & Finance

Austria’s unwieldy subsidies system continues to cost the country

Maria Fekter. World Economic Forum, 2011.

[Wikimedia]

In 2014, Austria allocated €19.3 billion for direct and indirect subsidies. This ranked it second worldwide just behind France. EurActiv Germany reports.

Former Austrian Minister of Finance Maria Fekter previously lamented the vast amount of funding made available at federal, regional and municipal level. But she, like her successors, was unable to scale back the Austrian subsidies system, mostly because the numerous incentives and grants make life bearable for companies and individuals in the high tax mountain country.

Experts believe that the amount of funding available could only be reduced through fundamental reform of the tax system and competencies. Eliminating duplicate subsidies would free up a considerable amount of money, but what is really needed is for the crutch of subsidies to be used less. A difficult ask.

>>Read: Commission mulls new measures against aviation subsidies from third countries

The Austrian government’s most recent report on the matter showed that there appears to be no reduction in the dependence on subsidies in the offing. In 2014, €19.3 billion in direct and indirect subsidies were paid out, up nearly €500 million on the previous year.

Breaking down the figures even more shows that savings were actually made in certain areas, but completely wiped out by significant increases in others. Direct subsidies pay-outs amounted to €5.26 billion, an increase of €102 million.

Savings were made in the business promotion and rural development sectors, but were negated by increased subsidies in the labour market and environmental support. Indirect subsidies rose by around €380 million to €13.99 billion, due mostly to increased VAT and research premiums.

All of these incentives added together totalled around 27.7% of Austrian GDP. The Alpine republic found itself only beaten by France in this regard, which allotted 31.8% of its GDP. Finland and Sweden spent similarly large amounts, totalling 26.2% and 22.5% respectively. Switzerland trailed significantly, with only 17.6% of GDP spent on subsidies.

>>Read: Foreign investment in European ‘unicorns’: A hollow debate?

The majority of money transfers were made between private individuals, accounting for around 20% of GDP.

The effect of the ongoing refugee crisis on Vienna’s finances will only be truly known next year, when the government produces its report for 2015.