* Finance ministry sees 2013 deficit at 2.3 pct of GDP
* Original projection had been 2.1 pct
* State debt expected to peak at 75.4 pct of GDP in 2013
* FinMin expects borrowing costs to stay ultra-low (Adds details, quotes and background)
By Michael Shields
VIENNA, Oct 16 (Reuters) - Austria will run bigger public deficits than hoped this year and in 2013 as the economy performs less well than expected and aid for its struggling banks eats into state finances, the finance ministry said.
The draft 2013 budget projects a deficit of 2.3 percent of gross domestic product, wider than the previous target of 2.1 percent but still well below the euro zone average, Finance Minister Maria Fekter said, adding the country expected to be able to continue financing itself at rock-bottom rates.
This year’s fiscal gap is set to rise to at least 3.1 percent of GDP, missing the original goal of 3.0 percent - the ceiling under the European Union’s membership criteria - after a series of bailouts for struggling banks in full or partial state ownership.
“It is regrettable that we don’t get under 3 percent, but that’s the way it is,” Fekter told reporters before her budget address to parliament on Tuesday.
She cited aid this year to help ‘bad bank’ KA Finanz shoulder Austrian writedowns on Greek debt, a 1 billion euro rescue that gave the state a stake in Volksbanken AG, and support for state-owned Hypo Alpe Adria bank.
The spending plan assumes the export-dependent economy will grow 1 percent in 2013, slower than first anticipated and as projected by the Wifo economic research institute.
Public sector debt is expected to peak at 75.4 percent of GDP in 2013, also above the EU norm of 60 percent.
By 2016, the deficit should shrink to 0.2 percent of GDP and debt to 70.8 percent, Tuesday’s projections showed, keeping the country mostly on track to balance its budget thanks to a package of spending curbs and tax hikes it adopted this year.
Euro zone countries are supposed to limit their deficits to 3 percent of GDP, but despite missing that target, the Austrian figures are better than the projected euro zone averages of 3.2 percent in 2012 and 2.9 percent in 2013, Fekter said.
She indicated there was no money set aside in 2013 for a potential writedown on Greek sovereign debt, saying that “hypothetical sums on ‘what happens if’ are not in the budget.”
Austria nationalised lenders Hypo Alpe Adria and Kommunalkredit after they fell victim to the financial crisis of 2008/2009. This year the state took a 43 percent stake in Volksbanken AG.
The country’s financial supervisor has told Hypo Alpe Adria to boost capital by 1.5 billion euros ($1.94 billion) by year’s end and by another 700 million in the first quarter of 2013.
The finance ministry said 300 million euros was in the 2012 budget for Hypo and talks were under way to cover the rest of the 2012 requirement in a way that aims to protect taxpayers as much as possible and not affect compliance with Maastricht criteria.
The 2013 budget includes 700 million euros in aid for Hypo and earmarks 200 million more for any state guarantees that fall due, the ministry said.
Ratings agencies keep a close eye on Austria’s relatively large banking sector - the leading lenders to emerging Europe - to monitor risks that they might need more state aid.
Standard & Poor’s stripped Austria of its coveted AAA in January and peer Moody’s has warned it might follow suit.
On a brighter note, the 2013 budget pencils in 250 million euros in revenue from re-privatising Kommunalkredit and includes expectations that Erste Group Bank will begin repaying 1.2 billion euros in state capital it got, Fekter said.
A tax deal with Switzerland targeting as estimated 12-20 billion euros in undeclared funds that wealthy Austrians have quietly stashed in Swiss bank accounts aims for a windfall of 1 billion euros in 2013 and 50 million a year thereafter.
Vienna’s safe-haven status amid the euro zone debt crisis has also pushed its borrowing costs to record lows, even letting it borrow at negative rates for as long as two years.
“We assume that interest rates will stay low and we will save a stack of money this way,” Fekter said.
$1 = 0.7730 euros Reporting by Michael Shields; Editing by John Stonestreet