The far-right FPÖ party and the conservative ÖVP have agreed on a new austerity budget, which is being tabled in Brussels today. Qualifying for the new government with a far-right chancellor? It was a first but also emphatic agreement in the post-election negotiations for the formation of the new government in Austria from the far-right Free Party (FPÖ) and the conservative People’s Party (ÖVP). On Monday afternoon the leaders of the two parties, Herbert Kickle and Christian Stocker, announced that they had reached an agreement on the new state budget for this year.

For 2025, cuts of a total amount of 6.3 billion euros are foreseen, with the aim of reducing the deficit to below 3% of GDP, as defined by the criteria of the Stability Pact. The far-right Herbert Kickle, who looks set to be the first far-right chancellor in Austria’s post-war history, says it is “a decision of principle” and “a joint timetable to prevent a treaty violation proceeding against Austria, because excessive deficit”.

“No new taxes”

It is noteworthy that the consolidation of the state budget is based exclusively on the reduction of state expenditures, without providing for new tax burdens. As Kickl argues, the deficit will come down “without new taxes, without a gift or inheritance tax, without an estate tax, only by taking steps to fight tax loopholes and privileges, end excessive subsidies, and all this taking into account the situation in the labor market and the growth indicators”.

Is it that simple? Many doubt it. Speaking on Austrian radio and television, Jan Holler, a member of the independent Fiscal Policy Council, says it “seems extremely difficult” to achieve the budget targets by focusing solely on the spending side. On top of that, the analyst points out, many of the planned austerity measures, such as pension cuts and the abolition of environmental subsidies, require amendments to existing legislation, which in turn require specific deadlines or transition periods. Consequently, the measures will not have time to deliver the expected result within 2025.

Express agreement ahead of Eurogroup

It took the two parties just three days to reach an agreement on such a critical issue as the new austerity budget. This speed is surprising, especially considering the tenacity with which the ÖVP had previously rejected any negotiations with the far-right FPÖ, only to change its mind soon after the resignation of conservative Chancellor Karl Nehammer in early January. ÖVP leader Christian Stocker claims that the agreement came too quickly because “significant groundwork had already been done” in the previous round of negotiations on the formation of the ÖVP government with the social democratic party SPÖ and the liberal NEOS, but which did not reach an agreement.

He even speaks of a time horizon of seven years, implying that he sees positively a long-term cooperation with the FPÖ in the government. “We agreed on a seven-year timetable, without an excessive deficit procedure,” emphasizes Christian Stocker. “The leader of the Free Party and I will sign a ‘declaration of intent’, which Finance Minister Ginder Meir will then take to the European Commission. With this consolidation the deficit will be reduced below 3%, as foreseen by the Maastricht criteria”.

According to the Austrian radio and television (ORF) the “transitional” finance minister Gunder Mayr will present the new budget plan to the European Commission within the day, with the aim of eliciting a positive assessment before the upcoming meeting of the Eurogroup on January 21 in Brussels.

The agreement could be interpreted as a message of “obedience” to the EU, at least as far as the fiscal consolidation policy is concerned (after all, the far-right FPÖ’s biggest disagreements with Brussels concern mainly the policy towards Russia or the refugee and less the “front » of the economy). The ÖVP will be able to “sell” it to its voters as proof of its supposed ability to tame the extreme attitudes of the FPÖ. The truth is, of course, that the future government partners have also been alarmed by the (now serious) possibility that the country’s credit rating will be downgraded. Just last Saturday, Fitch downgraded the outlook for the Austrian economy from “stable” to “negative”.