Federal government rejects call to bring forward payroll cost cuts

Austria’s federal government has rejected Lower Austria Governor Johanna Mikl-Leitner’s call to bring forward a planned cut in employer payroll costs, ORF reported on Friday. Economists said the proposal could support the economy but warned that financing and budget constraints would make it difficult to implement.

Mikl-Leitner, a member of the Austrian People’s Party, proposed during an interview on the ORF programme “NÖ heute” that the federal government move the reduction planned for 2028 forward to 2027. She said the measure would strengthen competitiveness, encourage investment and create and protect jobs.

“Yes, it costs money, but it naturally also brings in money,” Mikl-Leitner said.

Gabriel Felbermayr, director of the Austrian Institute of Economic Research, said he could understand the proposal from an economic perspective. He pointed to weak economic momentum, high unemployment and rising costs for businesses.

However, Felbermayr said bringing forward the cut must not increase the budget deficit. The financing would therefore also have to be brought forward, amounting to about two billion euros in 2027.

He said one quarter of that sum could be raised by reinstating contributions to the Family Burden Equalisation Fund for people over 60. He also proposed raising corporate tax for businesses with annual turnover above one million euros from 23 to 24 percent as early as next year. Even then, about 600 million euros would still have to be saved in other areas.

Austria’s federal government agreed on a two-year budget for 2027 and 2028 only in July. Reopening the budget could trigger further demands, Felbermayr warned. He said the proposal would generally be a good idea, but should have been pursued more forcefully during the budget negotiations.

Holger Bonin, director of the Institute for Advanced Studies, said he was sceptical about bringing the cut forward and expected its effects to be limited. He said the current economic situation did not clearly call for the measure and that the expected benefits could be smaller than some businesses and economists anticipated. He also questioned whether it could be financed under the current budget conditions.

Bonin said a broader debate on payroll costs was nevertheless necessary because they are high in Austria compared with other European Union countries. Most payroll-related costs go towards health and pensions, he said, adding that reform in those areas should come before a reduction in labour costs.

Monika Köppl-Turyna, director of the economic research institute Eco Austria, said an earlier cut would signal that the federal government was taking the problems facing businesses seriously. Its impact would depend on whether the measure could be financed through spending cuts, she said. Businesses should not have to finance the measure themselves through higher charges elsewhere, as that would cancel out its positive effects.

An Eco Austria study found that lower payroll costs increase employment, partly raise incomes and lead to additional business investment. Köppl-Turyna said bringing the cut forward by one year could also ensure it was implemented if economic conditions became worse than expected.

Kari Ochsner, president of the Federation of Austrian Industries in Lower Austria, gave clear support to Mikl-Leitner’s proposal. Austria needed to reduce the burden on labour more quickly if businesses were to invest more and safeguard employment, he said.

Markus Wieser, president of the Lower Austrian Chamber of Labour and chairman of the Lower Austrian Federation of Trade Unions, said the way the reduction was implemented mattered more than its timing. Labour-intensive businesses should receive targeted relief, he said, while companies relying heavily on capital and automation should contribute more to funding the welfare state.

Austria’s federal government rejected Mikl-Leitner’s demand on Friday.