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WIFO Director: “Living in a new, unpleasant reality”

The director of the Economic Research Institute, Gabriel Felbermayr(Bild: APA/HELMUT FOHRINGER)

There is no end in sight to the war in Iran following the failed peace negotiations with the U.S. Given the uncertain global situation, Austria finds itself in a “new, unpleasant reality,” as economist Gabriel Felbermayr explains. 

The fact that the government is planning a dual budget for 2027 and 2028 is generally a “good idea” for the director of the Economic Research Institute, as he explains on ORF’s “Pressestunde.” Due to the significant uncertainties stemming from the Middle East conflict, WIFO recently presented three scenarios for how the economy might develop. Felbermayr therefore advises against clinging too rigidly to a specific forecast regarding the budget: “We must remain incredibly flexible here,” he advises Economics Minister Markus Marterbauer.

Felbermayr, however, considers saving two billion to be unambitious, as he has already told the SPÖ politician. Savings could reach twice that amount, the economist said on Sunday. 

Criticism of the price cap: “Gas prices aren’t at historic highs”
He also expressed criticism regarding the fuel price cap that recently went into effect. The additional revenue from higher tax revenues could also have been used to support the labor market. “After all, fuel prices aren’t at historic highs,” the economic expert points out. He sees a lack of necessary measures regarding female unemployment, where funds must be allocated to provide a boost.

While the fuel price cap is merely a “drop in the bucket,” it could help cushion the inflation shock, according to Felbermayr.(Bild: APA/HARALD SCHNEIDER)

But measures must be taken to curb inflation. That is why it is “alright” to try to bring about some relief at the gas pump. A ten-cent savings per liter may be just a drop in the bucket, but: “It does add up and reduces inflation.” This is a “good and valid argument; otherwise, we would suffer from the inflation shock for years to come,” said Felbermayr. 

Fuel price cap does not change drivers’ behavior
However, the fuel price cap would distort relative prices, which could become critical during a looming shortage. This would not change drivers’ behavior. “It encourages people to keep driving and consuming fuel,” said the economic expert. 

Due to high volatility, we are confronted with a “new, unpleasant reality.” This is evident in trade policy: “You can no longer rely on tariffs; U.S. President Donald Trump has ruined that,” says Felbermayr. We are in a time of uncertainty, and the economy must adapt to this. “This becomes more difficult the heavier the debt burden you’re carrying,” said the WIFO chief. 

Felbermayr sees significant potential for savings in pensions. The WIFO chief pointed out that pensions have been “increased by 1.7 billion euros more than necessary since 2019.” If this amount alone were reversed, two-thirds of the announced savings target of 2 billion euros would be achieved.

“But consolidating the budget at the expense of pensioners wouldn’t be good either,” said Felbermayr. “Everyone must do their part to get the finances back under control.” He sees more targeted subsidies in social benefits as a possibility. 

This also applies to party funding, which is three times higher here than in Germany and many times higher than in other countries. “We need to tackle that as well,” Felbermayr demanded.

Wealth tax would be “disappointing”
However, a “wealth tax” would not be a panacea for the economic expert either. “The revenue will inevitably be disappointing,” Felbermayr said. Wealthy individuals would always find ways to avoid taxes, “and then it’s the middle class that ends up paying.”