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Austria Vows New Stimulus Package After Clumsy Aid Response (1)

June 15, 2020, 1:54 PM

Austria’s government is set to finalize more than 14 billion euros ($16 billion) of tax cuts, extra welfare payments and fixes to its rescue fund in a special meeting Monday and Tuesday after mishaps and discontent over its pandemic economic aid program clouded its success fighting the spread of the virus.

The conservative Chancellor Sebastian Kurz and Vice Chancellor Werner Kogler of the environmentalist Greens over the weekend unveiled some of the measures, including accelerated tax cuts for individuals and companies, additional refunds for virus-hit businesses, and a boost to unemployment benefits and an increase in family bonuses.

“Kurz is trying to get ahead of the game again, to be the one announcing good news,” said Thomas Hofer, a political consultant in Vienna. “The extra boost he enjoyed in the public during the first phase of the coronavirus crisis is melting away a little bit.”

Kurz won praise at home and abroad for his quick response to the pandemic. Even as he initially missed the fact that Austrian winter resorts spread the disease all over the continent in late February and early March, his government got a grip in early March, cut short the ski season, locked down the country, and had effectively contained the virus by mid-April, allowing the easing of the lockdown to start after Easter.

Haphazard Response

Some of the measures to cushion the economic blow, however, were designed haphazardly and needed multiple fixes before becoming effective, triggering protest from Austria’s business sector, a core constituency for Kurz. It started with a change in the country’s epidemic law that removed the right for companies to be reimbursed for losses linked to the lockdown, replacing it with aid that had to be applied for.

A bureaucratic design meant that the self-employed needed tax consultants’ support to fill out forms for aid that in some cases turned out to be less than the cost of the advice. Companies seeking government-guaranteed loans complained they had to prove their creditworthiness to banks. Surveys of small companies gave the programs terrible grades, and Finance Minister Gernot Bluemel acknowledged difficulties, saying “there was no blueprint.”

“Now is the right time for a stimulus program that strengthens optimism, consumer demand and supply,” Bluemel said in an interview with public broadcaster Oe1 Monday morning.

On the workers’ side, as many as 1.3 million jobs were saved initially, thanks to an unprecedented 12 billion-euro ($13.5 billion) wage support program, yet unemployment nevertheless soared by 50% to the highest numbers since World War II, and disproportionately affected low earners.

Support for Kurz’s conservative People’s Party, which had soared as high as 48% in opinion polls in mid-April, has come off those peaks to values around 44%, which is still significantly higher than at the last national election in October. Neither the Social Democrats nor the nationalist Freedom Party have made significant advances. “Kurz’s strength is not the least due to the fact that there is no communicator on the opposition side who’s able to articulate the discontent,” said Hofer.

The new measures announced so far include a 1.6 billion-euro cut of the tax rate for the first income bracket to 20% from 25%, a one-time extra payment of up to 450 euros for the unemployed, a tax credit for incomes too low to be taxed of as much as 100 euros per year, increased family benefits that will mostly help middle class voters, and a value-added tax cut for restaurants and cultural events.

For companies, there will be an option to deduct this year’s losses from previous years’ profits, avoiding as much as 2 billion euros in cash outflows. Changes to an existing aid and rescue fund, will add 6 billion euros of direct grants to cover fixed costs for periods of revenue losses.

(Updates with volume of measures, analyst comment.)

To contact the reporter on this story:
Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editors responsible for this story:
Chad Thomas at cthomas16@bloomberg.net

Richard Bravo, Zoe Schneeweiss

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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