Kern’s fragile Tax Plans

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Christian Kern has sold himself well in his first hundred days in office. His self-confident announcements on major reforms exude the image of a man of action. But this image is painted on thin and fragile glass. When people notice that he fails in the realisation of his plans, they will regard his next plans, which he will one day announce, as merely hot air. And this can unfortunately be expected because his plans appear to me to be unfeasible for two reasons:

1. The figures simply don’t add up!

If the Chancellor manages to reduce income tax and non-wage labour costs and still arrive at the same tax sum, then he will have to have a major retightening of the tax increases, which he has promised to offset this.

A few significant figures from the 2016 budget report can illustrate this:

Austria has a revenue of approximately € 80 billion per year. Around € 28 billion stem from income tax. If he wants to reduce this huge sum by even a mere 10%, there will be a gap of almost € 3 billion which he will of course wish to fill.

Christian Kern, therefore, would like to offset the reduction of income tax with new property taxes. The hearts of the loyal socialists will jump for joy: at last, the rich will have to pay, rejoice the left-wingers, totally malicious, and Christian Kern will conquer their hearts. However, if the Chancellor intends to offset the income tax with property taxes, I see only two possibilities – both bad:

Property taxes “swallow” income tax reductions

If he wishes to achieve a reasonably high return from property taxes, he can only do so when he does that which he has already threatened, namely impose a tax on all rents and smaller assets. In no time at all, rents will increase significantly and every Austrian can say goodbye to the added income that they have gained as a result of the lower income tax: property owners will just manage to pay their new property tax from what they save on income tax while those renting property will feel the burden of the increasing rents.

A tax on the rich does not work

I am aware that the left-wingers imagine the situation to be easier than it is: A property tax should of course only apply to the rich. From which “wealth limit” do we impose the tax? If the limit is set too high, the result will be insufficient tax payments because there will not be enough “rich” who, like Depardieu from France, will leave, which means that they will pay no tax at all. If the “wealth limit” is too low, then the middle classes, who actually may not be so rich, will be affected. Regardless of the emotional nature of the subject, whoever talks about tax reforms should, in addition to messages which sound good, not forget their calculator!

2. Who does Christian Kern want to realize these plans with?
The Chancellor has to know that his plans will never be feasible with the ÖVP. What are his plans then? Surely more than an election campaign announcement instead of serious plans from a man of action! But, if Christian Kern, apparently contrary to his own expectations, fails to achieve the majority vote in the next election like the “holy” Kreisky, he can forget his plans – with the ÖVP and the NEOS not feasible, with the Greens not possible due to the lack of majority and he simply does not like Strache, a fact which I can empathise with to some extent.

The greatest problem which is at the same time the solution: the pensions

Let’s look at the budget: with a total budget of € 80 billion, the largest posts are not those which are the subject of heated discussion: for example, the minimum income, a topic which the left and the conservatives are debating fiercely at the moment, is a “bargain” compared to pensions!

Around €10 billion from the tax budget go towards pension subsidies (due to the fact that the pension insurance institutions take in € 30 billion but pay out € 40 billion) and the same amount is directed towards pensions for civil servants, which makes a total of € 20 billion, representing a quarter of the budget! If the Chancellor wants to finance the reduction in income tax, the greatest potential by far does not lie in new taxes but rather in desperately needed savings.

But on this the Chancellor is silent, because he knows: Nobody wants to hear this from him. The deadly silence surrounding the fiasco in the Austrian pension system unites all parties: the FPÖ talk as if money grows on trees, the ÖVP is keeping quiet before the election, the NEOS will stop talking at the latest when they finally get to be part of a “Green-Pink” coalition and the Greens seem to find everything else more important.

But it is in the area of pensions that the possibilities for reform are huge: an extended corridor instead of a fixed retirement age, finally an adjustment of the retirement age for women, the mobilization of idle workers by means of better and, above all, lifelong training with concrete, moderated objectives, a step-by-step abolition of the widow’s pension – a relic of the body of thought from the last century – in the case of increased individual provision due to the employment of women and the resulting savings from an increasing number of compensatory allowances, massive restrictions in the case of maintenance for spouses with numerous positive side-effects for more contributions to pensions, tax and social security and the resulting, smaller burden on the budget immediately come to my mind as direct measures, reforms with indirect consequences, such as greater training efficiency and a good work/life balance and, by way of exception, reasonable family law for a sustainable population structure (because people once again like to have children) safeguard the budget and pensions for the future.

All these measures have a decisive common denominator: they sound unpopular. Now you too know why politicians address these ideas so rarely.

Therefore, I criticise all the politicians who are not interested in effective ideas but rather exclusively in popular ideas regardless of whether they, in the long term, serve the interests of Austria or only their own. For this reason, I consciously name those who remain silent about the great possibilities for true reform in the pension and family fields populists, whether they be left or right wingers.

It is up to all of us to assess politicians from this perspective, at the latest at the next election.

Source: “Kanzler Kerns Steuerpläne”: http://diepresse.com/home/politik/innenpolitik/5080060/Bundeskanzler-Kern-will-Steuersystem-umbauen

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Navigator Navigator Thomas Fellinger CC BY-SA 4.0