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Austrian elections bring new government

24 October 2017 Coface

On Sunday the 15th October, the Austrian snap general election saw the conservative People’s Party (ÖVP) win the most votes, 31.4% according to preliminary results.

This puts 31-year-old foreign minister and ÖVP leader Sebastian Kurz in line to become Austria’s next Chancellor and Europe's youngest head of government. The eurosceptic Freedom Party (FPÖ) and the centre-left Social Democratic Party (SPÖ) achieved 27.4% and 26.8% respectively.

The so-called “grand coalition” between the conservative ÖVP and the SPÖ has been the standard case of governance in post-war Austria, with some exceptions. The two key competitors - incumbent Chancellor Christian Kern (SPO) and foreign minister Mr Kurz (ÖVP) – were both part of this coalition government. Much of the success of the People’s Party election success can be attributed to Mr Kurz.

Since Mr Kurz became the party’s leader this year, support for the ÖVP has increased significantly. He emphasized the need for Austria to take a tougher stance on immigration by sealing its borders and slashing immigration-related benefits. Mr Kurz led a rapid reversal of Austria’s refugee policy, moving away from open borders, and as foreign minister he closed the Balkan route for asylum seekers in the spring of 2016, shutting Austrian borders to new arrivals.

Although contrary to Austria’s’ hospitable welcome of refugees in 2015 and 2016, with a spike in immigration and a slow integration of asylum seekers into the community which has led to an increase in fear and uncertainty in the Austrian population. According to a poll by the SORA Institute for Social Research and Consulting, the percentage of Austrians who are worried about “disorder” has increased by one third over the past last ten years.

It seems that immigration issues dominated each party’s election campaign, and the election results indicate that the government’s policy should not focus primarily on supporting refugees. Nevertheless, there has not been much room left for other issues, including the economy.

In this regard, the Social Democrats tried to focus on the economic improvement recorded during recent years when they governed. Mr Kern’s SPÖ emphasised that the robust health of the economy should be shared among all Austrians with a reduction in the tax rate on personal income and employer contributions, amongst other measures.

A lesser focus on the economy can be attributed to its current robustness. GDP growth this year is surging and recent economic indicators have led a number of researchers to increase their 2017 growth forecasts. The unemployment rate reached 5.6% in August: much lower than the European Union average. In addition, both domestic demand and exports have been growing.

Risks

Although Mr Kurz’s campaign has been dominated by immigration issues, the economy is not being ignored. The ÖVP has proposed more drastic changes than the SPÖ, with a larger reduction in tax rates on personal income and employer contributions.

A response to a wider budget deficit would be taking advantage of solid economic growth and implementing additional measures. Among them, some would be directed at migrants, including a reduced minimum social insurance guarantee for non-Austrian citizens. It would also target the workforce from Eastern Europe which provides relief for Austria’s tightening labour market. Nevertheless, the general government deficit reached 1.6% last year making this still manageable – even if it is expected to widen to some extent.

The new leader of the ÖVP has fit into a current flow of desire for change

Voters in many countries are willing to elect politicians who are not connected to the establishment, as has been seen in both France and the United States. It’s not only about charismatic leaders but also a higher support for nationalist parties: in France, National Front leader Marine Le Pen made it to the final round of the presidential election, and in Germany, a far-right party got into Parliament for the first time in more than half a century.

The Austrian election confirms that there is significant support for the FPÖ. The most likely scenario is that the FPO will form a coalition government with the winning ÖVP. The ÖVP’s rhetoric has been much softer than the FPÖ’s. However, such a rightward turn for Austria is strongly possible, especially now that the FPO has modified the tone of its message and moderated its traditional anti-EU policies.

The Austrian economy is unlikely to deteriorate as a result of the expected new government. The FPO no longer supports abandoning the euro, whereas Mr Kurz announced in his campaign that taxes would be lowered, personal and business tax. Although the ÖVP is supportive of the EU, it remains to be seen how its restrictive approach towards EU immigration policies will impact during Austria’s presidency of the EU in the second half of 2018 – a period of key Brexit negotiations.

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