VIENNA, April 21 (Reuters) - Austria's deficit and debt will rise above the European Union's ceilings due to bank bailouts, tax cuts and social spending, but they will stay better than in most of the euro zone, the finance minister said on Tuesday.
Finance Minister Josef Pröll told Austrian parliament the budget was heavily influenced by the global financial and economic crisis which will push the country into its deepest and most prolonged recession since World War Two.
"We are in the deepest crisis since the 1930s. We need to bolster demand, safeguard jobs and the country," Pröll said. "We need to spend money, and we will raise debt to do so because the international situation doesn't leave us with a choice."
Austria's deficit will rise to 3.5 percent of gross domestic product in 2009 and to 4.7 percent in 2010, up from 0.4 percent last year and above the EU limit of 3 percent. It is projected to stay at 4.7 percent in the following two years as higher interest payments on its fresh debt also weigh.
The government's debt level will rise to 73 percent of GDP in 2010, from 62.5 percent in 2008, also boosted by state capital injections into the banking system, for which the country has set aside 15 billion euros ($19.4 billion).
The left-right coalition government based the budget on the expectation the economy will contract by 2.2 percent this year and returns to slight growth in 2010, according to the budget Pröll presented.
It expects unemployment to rise to 8.5 percent in 2011, a major reason for the rising deficit as social spending including jobless benefits is set to rise 11 percent to 24.2 billion euros ($31.2 billion) this year.
Pröll said the deficit will still be significantly below the average for the euro zone, which the OECD has in March forecast to reach 5.4 percent this year and 7 percent next year.
He rejected much more pessimistic forecasts of up to 7.7 percent for Austria's deficit made in a draft OECD report on the country that was leaked ahead of his speech. The OECD says the numbers in the draft report are not yet finalised.
Tax revenues will drop by 3.7 billion euros, or 5 percent this year, the ministry said, partly because of falling corporate profits due to the crisis, and partly because of a tax reform Austria adopted to help counter the economic crisis.
On top of the tax reform, Austria is also spending around 4 billion euros on stimulus measures this year and next.
Market concerns that Austrian banks' exposure to emerging Europe -- which stands at at least 70 percent of GDP -- may require a massive government bailout have driven up the price of Austrian government debt relative to German debt in past months.
Ratings agencies have confirmed Austria's triple-A debt rating, however, dismissing concerns of a downgrade like that of euro zone fellow Ireland -- let alone the prospect of an Iceland-style default.
Austrian 10-year debt spreads hit a record high of 140 basis points in March but eased ever since to stand at 85 basis points on Tuesday -- still high by historic standards.
http://www.reuters.com/article/rbssBanks/idUSLL70947120090421?sp=truehttps://www.bmf.gv.at/Budget/Budget20092010/Gesamtueberblick.pdf
