Country Report Austria June 2008

Outlook for 2008-09

• While both coalition partners' interests should continue to be served better by remaining in office, it is possible that an early election will be held after 2008.
• The proceedings of a parliamentary investigation committee to examine allegations that the OVP misused its control of the Ministry of the Interior will cause co-operation between the SPO and OVP to suffer significantly.
• Before the end of the year the government will have to negotiate a budget for 2009-10. This issue may provide a legitimate reason, in the eyes of the parties and of the public, for ending the coalition.
• If a more radical politician is chosen to succeed the chancellor, Alfred Gusenbauer, as party leader at the SPO conference in late 2008, he will have to tow a more staunchly socialist line, threatening the stability of the coalition.
• A key government priority is to encourage research and development (R&D) and innovation to shift from a traditional to a high-tech, knowledge-based economy with companies excelling in highly specialised, niche areas.
• GDP growth is forecast to decelerate from 3.3% in 2007 to an average of 2.2% in 2008-09, reflecting a weakening of both export and domestic demand.

Monthly review

• In early June Salzburg's SPO governor, Gabi Burgstaller, declared that she would not be seeking a position in the party's board at the national level, criticising the SPO leader and chancellor, Alfred Gusenbauer, in her announcement.
• Frustration with the SPO and lack of support for Mr Gusenbauer was reflected in the Tyrol provincial election on June 8th, at which the SPO won only 15.6% of the vote, its worst ever result in Tyrol.
• The government agreed on a healthcare reform package in late May, which was met with strong resistance from medical doctors. The government revised the healthcare bill, but the doctors still plan to hold strikes in June and July.
• On June 6th the government agreed to reduce the marginal tax rate on foreign private trusts in Austria from 5% to 2.5%. The coalition partners claimed that it would help to attract foreign investors and support small, family-run businesses.
• While manufacturing output was strong in the first quarter of 2008, Bank Austria's Purchasing Manager's Index (PMI) was below 50 in April and May, indicating a contraction in industry.
• Producer price inflation accelerated sharply from an average of 9% in the first quarter to 9.1% in April and 11.7% in May, the highest rate in over 30 years.