Program can achieve positive results. The head of government Christian Kern has a plan intended to strengthen Austria’s economic position. This is urgently necessary in order to prevent the possible loss of competitive power.
Work Market, Education, Economics: The list of measures proposed by Chancellor Christian Kern, known as Plan A, is long and very elaborate. Whether it is explicitly meant to return Austria to the AAA rating by Moody’s Investor’s Service is not certain. However, the fact that Austria’s rating dropped from the highest AAA to AA+ precisely on the day as Kern was elected chancellor with an overwhelming majority, must have distressed the new leader, who has a strong background in business. This might have provided the motivation necessary to finally put the long-overdue reforms into effect.
Austria has fallen behind Germany
The fact that Austria has fallen behind Germany in the GDP growth despite similar conditions is a source of irritation not only for Kern, but for many business people and economics experts for some time. The reason why Plan A should be implemented is simple: the present upheaval in the traditionally stable markets - Brexit and Trump - has created a new time frame for local promotion opportunities and improved the economical situation in Austria as well. “After two years filled with growing pessimism, the consumers are regaining confidence,” says the economics expert at the Bank Austria, Stefan Bruckbauer. The 1.5% expected GDP growth for 2017 is still lower than Germany, but should be an improvement to the years before 2015. “The industry managed to carry the momentum beyond the turn of the year into 2017,” claims Christoph Neumayer, General Secretary Federation of Austrian Industries (IV). “In this context the government work programs can achieve positive results. How successful it will be depends very much on the local political framework, thus the IV advises reduction of bureaucracy and more flexible work schedules. After all, the lower Moody rating only reflects what the economics researchers, experts and business people have proclaimed for years, namely, that Austria is continually losing its competitive ability. In the international location surveys conducted by independent institutes such as OECD and World Economic Forum, but also the Transparency International Index, which are usually led by countries like Sweden, Finland of Switzerland, Austria has ranked way below Top Ten for years - unlike Germany.
Strictest regulations
Residential construction is the field that is most likely to profit from the low interest rates und the resulting run on the real estate investment - due to privately financed building activity, construction industry is one of the most important pillars of the economy. The already existing demand surplus in the residential market in the metropolitan areas will be intensified by the numbers of refugees, where the inexpensive and smaller apartments get snatched up immediately. Nevertheless, there is hardly any praise for the politics from the private construction companies. Complicated bureaucratic procedures and partially unreasonable regulations combined with a lack of decisiveness on the part of the government dampen the working climate. The rental prices in Vienna, which is the most important site on the housing market, have the strictest regulations in Austria. It is difficult for private investors to have deal with the introduction and then an increase of tax on profits (Immo-EST) payable when investment properties are sold as well as the intervention in the regulations concerning the depreciation deductions (AfA). “Such retroactive procedures destroy the investor confidence and willingness to contribute and have a negative effect on the economy as a whole,” explains Georg Flödl, President of Österreichischen Verbands der Immobilienwirtschaft (ÖVI). Why a country the size of the province of Bavaria needs nine different construction regulations is a mystery in the brach. Just as puzzling is the implementation of increasingly tough new measures proposed by the EU ranging from accessibility into buildings and real estate broker legislation to energy consumption certificates.
Increasing demand and high price levels
The discontent about the situation explains why despite increasing demand and persistently high price levels, fewer residential units have been completed than would be necessary - around 7,000 as opposed to 10,000 needed, suggest Flödl. He demands tax incentives as a motivating factor to make investments in housing more attractive and an end to the well-established practice of having the real estate investors pay more year after year. Wolfgang Louzek, President of the Verband der Institutionellen Immobilieninvestoren (VII), who represents the most important major investors on the market, considers a reform of the current restrictive rental laws to be of utmost urgency: “Our rental laws remind me of communism,” claims Louzek, “there is a renal nobility, which insists on keeping their rights and resists any changes.” The situation is quite different in Germany. Although there are controlled rental price restrictions, private landlords who have modernised their properties are allowed to raise the rents. As a result, there has been more investment in real estate in the German cities and despite the steady flow of refugees, Germany is not experiencing housing shortages. “On the whole there is a demand for more affordable housing to fulfil the needs of the new immigrants, but this can only be achieved with new parameters concerning construction expenditures as well as land costs,” says Michael Pisecky, Chairman of the specialist group of real estate and capital trustees at the Austrian Economic Chamber (WKO), Vienna. “Solutions are urgently needed and our suggestions and proposals have already been prepared,” he says and hopes that the actual realisation of the measures will be implemented by the policy makers - in for a penny (Plan A), in for a pound (Plan B).