New government: an opportunity for Austria!
Prof. Dr. Tobias Thomas Director
Federal President Alexander van der Bellen swore in the new federal government today. Tobias Thomas, Director of the economic research institute EcoAustria, comments on this:
"The new federal government offers a great opportunity for Austria. If it succeeds in combining the goals of ecological, economic and social sustainability, Austria can act as a role model for many countries. The government programme rightly emphasizes the need for comprehensive climate protection measures, because climate change cannot be ignored. Today, the Paris Agreement provides the framework. Whoever manages to achieve the climate targets in the most cost-effective way can gain an advantage in terms of competitiveness. Science can make an important contribution to the selection of suitable climate policy instruments, as these have been the focus of environmental economic research for decades. Although requirements and bans can lead to the targets being achieved, they can do so at high costs and thus lead to significant losses in competitiveness. ACO2 tax would only achieve the targets accurately if the state correctly "guesses" the necessary tax level. However, the state lacks the necessary information for this. European emissions certificate trading has already contributed to significantly lowerCO2 emissions in the industrial and energy sectors. Such a system could also help to ensure that climate targets are achieved safely and as cost-effectively as possible at national level in the areas of transport and buildings. The revenues could also be used to relieve the labor factor of the currently high levies.
With a tax burden of around 43% of gross domestic product, Austria occupies a less than glorious top position in Europe in an international comparison. The high tax burden means that employees receive too little of the fruits of their labor and companies are deprived of much scope for investment. The fact that the government program builds on the plans for the major tax reform of May 2019 is the right signal, as it would increase employment by 50,000 jobs in the medium to long term, as analyses by EcoAustria show. In connection with climate protection measures, however, this also means that the revenue fromcarbon pricing should be refunded and used, for example, to further reduce the burden on the labor factor.
In addition, climate targets and competitiveness can only be secured in the long term if unintended social side effects are avoided as far as possible. This is demonstrated not least by the yellow vest protests in France. The public debate is currently focusing on the direct effects ofCO2 pricing, for example who will pay how much more at the petrol pump. Even if this question is important, the indirect effects are at least as important: if the competitiveness of the location is unduly burdened by an unfavorable selection of climate policy instruments, growth and employment will be lower and the consumption options of private households will be restricted. This can also reduce the support for climate policy among the population. International studies show that, depending on the level and type of reimbursement, the cumulative growth effect ofCO2 pricing can be between plus 4 and minus 8 percent over 40 years. This illustrates both the opportunities and the risks of climate policy. Scientific studies in a general equilibrium model, such as the analyses by EcoAustria with the PuMA macro model, can provide important insights into this."
