At the same time, as in Germany, the government aimed at achieving a balanced budget. In 2017, the preceding grand coalition between SPÖ and ÖVP left a budget deficit of 0.8% of GDP behind. Budget consolidation should be achieved through structural reforms, including a comprehensive tax reform and spending restraints. The coalition intended to cut spending by around EUR 12 billion, or 3% of GDP.
Immigration has been among the major concerns of the population. This is partly related to the high share of foreigners in the labour force. In 2018, 16% of employees were non-Austrian, one of the highest in the EU. Most of them are from other EU countries, in particular from central and eastern Europe. In addition, Austria has been confronted with a considerable inflow of asylum seekers. In the period 2015-2016, 130 000 people applied for asylum. This flow has been substantially reduced to around 1 000 applications per month, as fewer refugees come to Europe by the Western Balkan route.
The coalition wanted to make Austria less attractive for immigrants. According to its view, immigration should only be facilitated for qualified workers in sectors where Austrian firms struggle to find suitable employees. Moreover, the right to social assistance would be blocked for newcomers that have lived less than five years in the past six years in Austria. Finally, cash benefits for asylum seekers would be reduced.
In the short period that the coalition was in charge only some modest measures were taken, such as a reduction of the unemployment insurance contributions for low-income earners, the revocation of the increase in the VAT rate on overnight stays and the introduction of the family bonus plan. The latter provides a tax credit of up to EUR 1,500 per child a year. It replaces the tax deductibility of childcare costs and the child allowance. The measure is contested by the SPÖ, as it favours wealthy households. Parents that earn little do not benefit fully, as their tax liability is reduced at most to zero.
On immigration, the government decided to peg social assistance to foreigners to their German language skills. Moreover, family benefits for children residing in another EU country have been made dependent on the cost of living in that country. The EU Commission esteems that the latter is not compatible with EU rules and has started an infringement procedure against Austria.
Government finances have improved between December 2017 and May 2019. In 2018, the government budget was in surplus, 0.1% of GDP, for the first time since 1974. For 2019, the budget surplus is estimated to increase to 0.3% of GDP.
This result is mainly due to the decline in interest rates and the favourable economic environment, which has boosted tax receipts. As a result, the tax burden marginally increased in
2018 to 42.8% compared with 42.4% in 2017. A slight easing to 42.6% is expected for 2019.
Difficult coalition talks ahead
Opinion polls point to a clear victory of the ÖVP. The party could obtain around 36% of the vote. To obtain a majority, it has to look for a partner. Mr Kurz had hoped to form a coalition with the small liberal party NEOS. However, this would not give him a majority as the party is only credited with 8.3% of the vote.
Mr Kurz could try to revive the so-called grand coalition with the SPÖ. Austria has been frequently governed by this combination, the latest time between January 2007 and December 2017. However, the ÖVP leader might not be very keen on contemplating this combination given unhappy memories of the previous grand coalition. It also would imply a drastic change in policy. Moreover, the SPÖ might not be so keen to join the coalition as, according to the polls, it is likely to lose a significant part of its support: around 22% against 26.9% in the 2017 election.
This leaves a coalition with a weakened FPÖ. Polls indicate that the extreme right party might obtain 20% of the vote compared to 26% in the 2017 general election. The advantage of a continuation of a coalition with a much smaller FPÖ is that Mr Kurz could continue the old coalition programme with more emphasis on his own policies and more ministers of his own party.
Weaker economic growth ahead
