Austria close to budget consolidation deal-source

VIENNA Thu Feb 9, 2012 7:23am EST

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VIENNA Feb 9 (Reuters) - Austria's governing coalition is close to clinching a deal to improve public finances by around 27 billion euros ($35.8 billion) by 2016 via a mixture of spending cuts and tax hikes, a government source said.

The accord, which aims to nearly eliminate the structural budget deficit amid European countries' campaign to put their financial houses in order, may be presented within days and as early as Friday, the official said.

Chancellor Werner Faymann of the Social Democrats and his deputy Michael Spindelegger of the conservative People's Party were holding "final negotiations" on Thursday, the source said, after weeks of sometimes frosty jousting over the package.

The 27 billion euro figure represents the cumulative impact of spending cuts and tax hikes through 2016. The federal government is supposed to generate 21-22 billion euros of the total, and states and municipalities the rest.

"The percentage is 30 percent taxes to 70 percent (spending) cuts," said the source, who declined to be identified because the discussions were confidential.

Faymann's spokesman did not immediately return messages.

Stung by Standard & Poor's decision last month to strip Austria of its top debt rating, the government has focused on whipping finances into shape to help guard against threats from Austria's strong ties to eastern Europe and struggling Italy.

Austria's 2012 budget forsees the deficit narrowing to 3.2 percent of gross domestic product from a preliminary 3.3 percent last year. The government wants to get state debt below of 60 percent of GDP by 2020 after peaking at 75.5 percent next year.

Weeks of talks clearly put strains on the coalition by forcing the parties to confront their voter bases ahead of parliamentary elections due next year.

While tempers sometimes flared, chances seem low for a rupture that could trigger early elections even though the resurgent far-right Freedom Party has stumbled in polls as its leader takes a beating over clumsy remarks.

The Social Democrats pushed hard for taxes linked to wealth, while the conservatives were dead set on spending cuts to plug the hole. Pensioners and public-sector employees have expressed reservations about the potential impact on them.

According to media leaks, the compromise package under discussion includes raising the ceiling on social security contributions, boosting tax rates on holiday and Christmas money that high earners get, and closing a loophole that exempts properties owned more than 10 years from capital gains tax.

The conservatives have demanded changes to make early retirement less attractive, tackle health care costs, reduce administrative spending and chop subsidies.

The finance ministry says direct and indirect subsidies to companies and individuals make up around 26 percent of GDP, the highest rate in the European Union. Beekeepers, oompah bands and electric bicycles are among the items that qualify for support.

Austrians also stop working sooner than most, in part because employers offer good deals for older workers to leave. Men on average retire just shy of age 59 and women at 57.5 even though the legal minimum age is 65 for men and 60 for women.

Austria spends nearly 13 percent of GDP on pensions.

($1 = 0.7545 euros) (Editing by Toby Chopra)

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