Austria aims to put together a tax relief package worth at least 5 billion euros ($6.3 billion) next year, which could promote growth in a sluggish economy without boosting deficits and debt, officials said on Saturday.

The Social Democrats (SPO) and their conservative People’s Party (OVP) coalition partners agreed on hitting that sum in talks due to wrap up by early 2015, but put off exact details on income tax cuts amid differences over how to finance them.

The SPO had lobbied for more ambitious tax cuts to be financed in part via new wealth taxes, anathema to the OVP, whose leader Michael Spindelegger quit in August complaining of lack of support from his own party.

SPO Chancellor Werner Faymann told reporters after a two-day cabinet meeting in the Alpine resort of Schladming that the 5 billion euro target was a minimum. “We are looking to see if a bigger sum is possible,” he said.

New OVP leader Reinhold Spindelegger and conservative Finance Minister Hans Joerg Schelling have also opposed wealth taxes, focusing instead on how to streamline the government so tax cuts become affordable.

In an interview with ORF radio, Schelling said the new tax cut package was set to start in phases from 2016 and would aim to reduce the initial income tax rate “in the direction of” 25 percent, from 36.5 percent now for income over 11,000 euros.

More relief could come in phases by 2018, he added.

Schelling reiterated his stance that tax reform financed by new debt was not an option. “We have a spending problem, we should work on spending,” he said, sticking to the OVP line that it would not accept new taxes on wealth or inheritances.

He vowed to look at the country’s generous system of subsidies “with no taboos” to see where to save.

Austria’s budget deficit is set to rise to 2.7 percent of gross domestic product and debt to 80 percent of GDP this year due to costs of winding down nationalised bank Hypo Alpe Adria.

The coalition partners that just achieved a combined majority in elections last year also agreed to exert more control over state holding company OIAG – which manages stakes in companies such as OMV, Telekom Austria and Austrian Post – by directly naming OIAG supervisory board members.

They insisted this was not an attempt to politicise the agency, rather to ensure officials who bear responsibility for OIAG decisions have more say in what goes on there.

The new system still needs to be worked out in detail, but could entail moving state stakes in motorway agency ASFINAG or energy group Verbund into OIAG, officials said.

Schelling told ORF he would not exclude privatisations as well but gave no details. The SPO has traditionally been wary about reducing state stakes in companies.
Source: Reuters.