Deep recession

How blue-black is now supposed to save industry

The industry is in recession and a third year in a row should be avoided.

(Bild: reneknabl.com)

Industry has favored an FPÖ-ÖVP coalition from the outset, but now it may be imminent. The Federation of Austrian Industries is now campaigning for key measures and is also calling for a pro-European stance. Agenda Austria boss Franz Schellhorn hopes that structural reforms will finally be tackled due to the tight budget situation.

Domestic industry has already been in recession for two years. Value added fell by a further 4.5 percent in 2024, while unemployment in the manufacturing sector soared by 17.8 percent. Major bankruptcies of well-known industrial flagships such as KTM are increasing uncertainty. Investments in the location are declining.

"Balance the budget without new taxes"
 This year has not started much better either. In addition, possible import tariffs under the new US President Donald Trump are weighing on businesses. Open economies such as Austria or the most important trading partner Germany could suffer in particular.

This year, economic researchers are forecasting growth of around half a percent. IV President Georg Knill hopes that the government will not stifle this mini-growth. Consolidating the budget is feasible without new burdens or tax increases. With a government spending ratio of 55% and a tax ratio of 43%, it is clear that Austria has a spending problem. "Consolidation must take place exclusively on the expenditure side," demands Knill. The industry is therefore proposing four key measures:

Firstly, spending should be cut. As an example, Knill cites the climate bonus, which cost the state over 1.5 billion euros last year. The IV also sees potential for savings in subsidies. The new government is to "thoroughly review" various subsidies. At 7 percent, Austria is at the top of the European average for subsidies as a percentage of economic output. A reduction to the EU average alone would save up to 8.5 billion euros per year.

A reduction in bureaucracy would be a measure that costs nothing and immediately relieves the burden on companies.

IV-Präsident Georg Knill

Bild: Zwefo

Confusion of competencies devours a lot of money
Secondly, the IV wants targeted increases in efficiency, for example in the health and education sectors. The duplication of effort here costs a great deal, as there is a confusion of competencies between the federal states and the federal government.

However, these measures will not be enough in view of the huge deficit. Structural reforms are also necessary, the industry appeals. Year after year, the state has to pay more into the pension system; federalism is also very inefficient and entails a rat's tail of expensive structures.

The new government could quickly save a lot on climate funding.

(Bild: APA/ROBERT JAEGER / APA / picturedesk.com)

2.5 percent of turnover for bureaucracy
Fourthly, the IV is once again calling for bureaucracy to be slashed. "That would be a measure that costs nothing and immediately relieves the burden on companies." 2.5 percent of sales revenue is currently spent on bureaucracy. "That's money that could also be used for investments," says Christoph Neumayer, Secretary General of IV. The total cost of bureaucracy is between 10 and 15 billion euros. Neumayer proposes a deregulation law. This was already in place under the Black-Blue government from 2017 to 2019 and included so-called "one in, one out" provisions and "sunset clauses" that allow laws to expire automatically. 

Industry calls on Kickl to make a clear commitment to the EU
Despite all the overlaps with the Freedom Party's economic program, the IV is calling for a clear pro-European stance. "Austria lives from exports - we earn 6 out of every 10 euros abroad. I must also reflect this in the coalition program," appeals Knill, who is in favour of a strong Europe. Although there is much to criticize, such as the excessive bureaucracy and the suffering competitiveness, Austria must change this within the EU and not from outside. He is also clearly against "fortress Austria", saying that Austria needs qualified specialists - including from abroad.

In reality, the main issue in Austria is to reduce spending instead of actually cutting it.

Agenda-Austria-Chef Franz Schellhorn

Bild: Markus Wenzel

Agenda Austria sees major overlaps in the economy
The head of Agenda Austria, Franz Schellhorn, agrees in an interview with Krone. He sees the biggest sticking points for a possible blue-black coalition in the FPÖ's skeptical stance on the EU and its affinity with Russia. However, the parties should find common ground quickly on economic issues. In the current negotiations, he is calling for "small teams for big issues instead of big teams for small issues".

He is also convinced: "A purely expenditure-based restructuring is certainly possible". He is in favor of eliminating over-subsidies, and says that the state has also been too little targeted and too generous when it comes to climate and environmental subsidies. Many investments, for example in renewables, would be made by companies anyway, as they are efficient and do not require high subsidies.

Another major lever lies in pensions. "We already spend a quarter of our entire budget on this, which is then lacking for future investments," says Schellhorn. Neither the ÖVP nor the FPÖ include any far-reaching reforms in their programs, but the pressure is likely to increase. Schellhorn suggests the following: "Pensions have mostly been increased above inflation in recent years, now they could be increased below inflation in order to save money."

Schellhorn: "Budget deficit will increase pressure for reforms"
 If the deficit continues to explode, it will become increasingly expensive for Austria to take on debt. The tight budget situation should therefore force a government to implement reforms. Are rigid austerity measures and harsh cuts on the cards? No, says Schellhorn: "In reality, the main issue in Austria is to reduce the increase in expenditure rather than actually cutting it." The best way to do this is with structural reforms.