Wifo and IHS paint a less encouraging picture in their current economic forecasts. The economy will stagnate this year, unemployment will rise and industry in particular will have problems. We are currently “internationally competitive” and “first in the group” in football, but certainly not in the economic equation, Wifo boss Gabriel Felbermayr and IHS boss Holger Bonin said at a press conference on Wednesday. Both demanded austerity measures from the government.
This year the deficit is at the Maastricht limit of 3 percent (IHS) or slightly above (Wifo) and, according to Felbermayr, will remain above that until 2028 if no new measures are taken. “Yes, okay, the austerity package sounds terrible,” but “in the future” it will probably be necessary, the Wifo boss said.
Felbermayr: “We now need a meeting with reality”
Because society has become poorer – GDP per capita is below the pre-Corona level of 2019. “We tried to hide this through expansionary fiscal policy and compensate for this by adjusting wages to inflation. But if we have actually suffered a loss of prosperity, then these are Potemkin villages.” This is not sustainable in the long term. “We need a meeting with reality now,” Felbermayr said.
Bonin advised not to think long about whether economic growth will be 0.0 (Wifo) or 0.3 percent (IHS) this year. Crucially, the EU average is 0.9 percent growth and Austria is far behind. Talking about an “austerity package” is “somewhat short-sighted”, but Austria would have to save around 2.5 billion euros on the revenue side. Only when the measures to cut expenditure have been exhausted should one think about additional taxes, in addition to the tax on mineral oils, the tax on alcohol and tobacco, which should be used to finance the savings.
From the point of view of economic researchers, the necessary measures, from cuts in indirect labor costs to thinning taxes, cutting bureaucracy and reforming the key spending areas of health, care and pensions, are not new. In view of the upcoming elections and the subsequent government negotiations and the formation of a new government, a reform or austerity package cannot be expected any time soon, Felbermayr and Bonin are realistic.
The boss of Wifo proposes to increase the tax on mineral oils
Felbermayr insists that “at least before the elections there will be no election gifts.” He knows that the need for consolidation will not be discussed during the election campaign, but politicians must at least “consider that what they promise today cannot be fulfilled in the coming years.” In the meantime, because the major reforms would likely take years, Felbermayr could imagine a quickly implemented increase in the mineral oil tax (MÖSt) to get the deficit and debt under control. The MÖSt has not been adjusted to inflation since 2011. Compensating for inflation alone would easily yield 1.5 to 2.5 billion euros, “even if that causes a lot of anger among motorists.”
Savings package probably not realistic in the near future
Bonin is slightly more relaxed about postponing measures. “Even if we had a government capable of acting,” it would initially have to wait ahead of a possible recovery in the fall. Such a savings package would dampen the economy again and lead to uncertainty in the economy in advance, “so it may not be too bad” that measures will realistically only come in the second half of 2025. It would have been nicer earlier, but that is not realistic, according to Bonin.
Even though it is unlikely that politicians will immediately respond to the suggestions of economic researchers, “it is important that we show that there is fire on the roof,” Felbermayr said.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
