The Subsidy Policy

The Subsidy Policy

Austrian federal subsidies, both direct and indirect, stabilized as a share of GDP during the late 1980s. Direct subsidies were estimated to average about 0.4 percent of GDP, and indirect subsidies were estimated at about 1.3 percent of GDP. The subsidies began changing during the late 1980s from generally defensive subsidies intended to preserve traditional industries to more specifically targeted programs such as special subsidies for research and development, innovation, and environmental protection. The Innovation and Technology Fund was established, and in 1989 the government conducted a special review to reduce subsidies to certain traditional industries and to tourism.

Agricultural subsidies were well below the EC average during the late 1970s, but they rose during most of the 1980s. By the end of the decade, they had reached a level slightly above the EC average. In addition, the government subsidized investment and debt service for nationalized industries and covered occasional losses for those industries.

To reduce the burden of the nationalized companies on the state budget, the government began a systematic effort to privatize its share in those companies in the late 1980s. Some of the privatization efforts included the sale of the mint to the partially privately owned Nationalbank. The government's share in Austrian Airlines was reduced to a small majority ownership, and 49 percent of the state electricity company was sold. The federal government's share in the Creditanstalt-Bankverein and the Österreichische Länderbank was reduced to 51 percent. In other instances, however, privatization took place through the sale of state assets to other government-owned or government-directed organizations, rather than to the private sector. For this reason, the program did not generate as much income as originally anticipated.

The level of regulation and subsidization, combined with the significant national ownership of major industries, makes production and consumption costs high. On average, consumer prices in Austria are between 10 and 20 percent higher than in EU member states. They are even higher than in Germany, which is also noted for its high prices. Direct comparisons indicate that productivity in Austria is lower than in Germany but that markups for consumer retail sales and profit margins in the distribution system are higher.

These figures raise a number of important questions for Austrian economic planners as they prepare for the economic unification of Europe after the collapse of the Soviet Union's satellite system. The competitive pressures against Austrian producers and workers will likely increase in a widened EU, especially if states having low costs, such as those of Eastern Europe, are admitted.

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