New Austrian finance minister vows tax reform, less bureaucracy

VIENNA, Sept 2 Tue Sep 2, 2014 12:00pm EDT

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VIENNA, Sept 2 (Reuters) - Austria needs "tax reform - not tax cuts" to help eliminate its structural deficit in 2016, new Finance Minister Hans Joerg Schelling said on Tuesday, less than a week after his predecessor quit in a row over tax.

Addressing parliament for the first time in his new role, Schelling vowed to start dismantling the country's bloated bureaucracy and simplify state finances as a way to free up resources badly needed to boost a flagging economy.

The millionaire businessman did not detail steps he might take but stuck to a timetable to draw up proposals that could be adopted by next March.

Former finance minister Michael Spindelegger stepped down last week, accusing his conservative People's Party (OVP) of failing to back him in refusing to lower tax rates unless the state could do so without raising other levies.

That put him at odds with the Social Democrats who lead the government coalition and with some of the OVP's powerful regional heads who favour stimulus over austerity.

Schelling, 60, said the main issue now was finding ways to whip finances into shape without prejudging how to do so.

"Reform is a matter of simplifying, clearing out and (tax) relief, not just relief," he said, adding much work lay ahead on the spending side to promote a leaner, more efficient state that is closer to citizens.

Schelling, an independent-minded reformer who once ran two home-furnishing chains, took aim at the size of the state.

"With all my power I will stand for what we have promised citizens for many years, if not decades: tackling administrative reforms," he said. "It is exactly these reform steps that will create the leeway we need for the topic of tax reform."

Austria's budget deficit is projected to rise to 2.7 percent of gross domestic product this year and debt to nearly 80 percent of GDP thanks to the costs of winding down stricken nationalised lender Hypo Alpe Adria.

The economy, which grew just 0.2 percent in the second quarter, is struggling.

The central bank last week cut its forecast for 2014 GDP growth to 0.9 percent from 1.6 percent, citing lower-than-expected investment, weak domestic demand and subdued exports amid a downturn in key trading partner Germany.

Big euro zone banks are about to undergo tests of their ability to withstand shocks, and partly nationalised lender Volksbanken is likely to need more capital, sources close to the matter have told Reuters.

Schelling, who quit as Volksbanken chairman after being appointed to the finance ministry, did not address the bank in his speech.

OVP leader and Economy Minister Reinhold Mitterlehner was earlier non-committal about giving further aid to Volksbanken, a step Spindelegger had ruled out. Volksbanken has already got 1.35 billion euros in support from taxpayers. (Additonal reporting by Shadia Nasralla; Editing by Catherine Evans)

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