Earlier this year, the Austrian government began rolling out its long-awaited “eco-social” tax reform programme — part a plan to reduce greenhouse gas emissions to net zero by 2040.
Although the current economic landscape, scarred by the war in Ukraine, pushed back the start date by three months, the measures came into effect on October 1, marking an important moment for the country and its ruling coalition of the dominant conservative Austrian People’s party and the Greens.
The tax changes, shaped by a commitment to a green transition, are the second stage of an eco-social reform agenda, following green measures introduced in 2020. And, while many of the measures are aimed at households, the government is also trying to incentivise businesses to go green.
A key component of the reforms is the introduction of a tax on carbon dioxide emissions, aimed at pushing households and industries into a switch to renewable fuels.
In October 2021, the government announced that, under this emissions measure, CO₂ would initially be taxed at €30 per tonne, starting in July 2022, gradually rising to €55 a tonne by 2025. “We have united to give carbon dioxide emissions a price”, finance minister Gernot Blümel said at the time.
Revenues from the CO₂ tax are intended to flow back to the population, and to the economy in general, with residents receiving a cash dividend depending on their place of residency and their access to public transport. Residents of more rural areas will receive up to €200 a year, while those in urban centres will receive €100, with a bonus for those with children.
For this year, the regional climate bonus was raised to €250, in addition to €250 as an inflation bonus, given the current economic climate.
At the same time, the government is preparing an investment allowance of up to €350mn to help businesses improve energy efficiency, while establishing a hardship scheme to avoid penalising emission-intensive industries that rely on competitive pricing with international rivals.
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Companies investing in low-emission buildings and vehicles, meanwhile, can also receive financial support, while money is being made available for the phasing out of oil and gas heating in private homes.
In September, in a review of the Austrian economy, the IMF wrote that this eco-social reform was an important step in the country’s green transition, while advising against increasing broad-based compensation above the medium-term carbon neutrality objective.
Even so, many feel that the measures are insufficiently ambitious, with carbon prices too low to have any significant impact.
“The Greens are in the federal government for the first time, and this was kind of their prestige project,” says Margit Schratzenstaller, an economist at the Vienna-based Economic Research Institute. “The People’s party is not really a fan of environmental taxes. After lengthy negotiations, they agreed on a rather, I would say, not very ambitious price path.”
Karin Fuhrmann, a partner at tax advisers TPA in Austria and an expert on energy projects and sustainable buildings, says the direction is correct, but more must be done to entice companies to invest in going green faster.
“We do have in Austria tax incentives for companies, [an] investment subsidy that means that, from an investment you make as a company, you can offset an additional 10 to 15 per cent . . . from a tax perspective,” Fuhrmann says. She is referring to a new measure that comes into effect next year and allows companies to deduct 5 per cent of their investments in ecological initiatives, up to a maximum of €1mn, in addition to a new investment tax credit of 10 per cent.
However, the fact that these measures are capped at €1mn a year limits their impact, says Fuhrmann. “They’re going to need to raise it,” she says, adding that there are also now “lots of other subsidies given to companies if they are going to [make] green investments, especially in the renewable sector”.
Fuhrmann says many companies in Austria are already investing in green solutions to limit their exposure to increasing energy prices, rather than in response to government measures.
Also starting this year, self-produced and consumed photovoltaic energy will be exempt from the electricity tax without limits, while the government is set to lower the corporate tax rate gradually from 25 per cent today to 23 per cent in 2024. Still, some believe that the eco-social tax agenda has so far been aimed primarily at households rather than companies — with individuals not only receiving the cash dividend but also seeing income tax rates dropping from 35 to 30 per cent for those earning between €18,000 and €31,000, and about to drop from 42 to 40 per cent for those earning €31,000 to €60,000.
Thomas Hofer, a prominent political consultant, says that the businessrelated case for Austria’s eco-social tax reforms has not yet been sufficiently stressed. “I think there’s still room for that,” he argues. “But, so far, at least when it comes to public communication, the government has been concentrating more on households rather than the companies. In terms of business, I think this is still the missing link.”