VIENNA (Dow Jones)--Austria's federal government agreed a budget pact with provincial and local administrations to cap expenditure and sanction those who overspend, the finance ministry said Thursday.
"We want and will achieve a zero deficit by 2016," Finance Minister Maria Fekter said. "The new stability pact proves everyone's willingness to save and we are on the best path to balanced state finances."
She added the agreement sends a "clear signal" to financial markets.
The package includes measures to track local and provincial spending with "sinners" warned and given two months to act and avoid sanctions, the ministry said.
Standard & Poor's downgraded Austria's credit rating in January to AA+, a peg below the highest triple-A level. It cited Austrian banks' involvement in Central and Eastern Europe and potential spillover from the euro zone's sovereign-debt crisis.
Austria has worked to convince markets its financial situation is sustainable. Provincial and local governments originally resisted the package. http://online.wsj.com/article/BT-CO-20120503-707253.html
Austrian Gov't, States Agree on Deficit-cutting Pact
Austrian states on Thursday agreed on a nationwide deficit-reduction pact with the federal government after Wednesday talks with Finance Minister Maria Fekter proved fruitful.
Under the new economic stability pact, state governments are to follow a set plan to achieve a zero budget deficit by 2016, and put measures in place to reduce debt by one-twentieth per year thereafter.
The general government deficit this year is estimated to be 3 percent of the Gross Domestic Product (GDP) due to weak growth.
Upper Austrian governor Josef Puhringer joined his interstate counterparts in praising the new pact, saying it would give future generations "more room to move."
The pact will require Upper Austria to save 950 million euros (1,249 million U.S. dollars) by 2016, and though no easy task, Puhringer said he sees it as part of a positive "paradigm change", in that states have never before been subjected to such strict rules with regard to spending taxpayer money.
Fekter said she found the talks "very constructive", and that "all parties were willing to work toward a solution."
The pact should "hopefully" be finalised and signed off on by May 9, said Fekter.http://english.cri.cn/6966/2012/05/04/3124s697230.htm
Debt plan for the states and Austria as a whole until 2016:
Austria had a 2.6% budget deficit last year and it is projected at 2.99% this year (just below the 3% Maastricht criteria to avoid a EU punishment) because GDP growth will slow down to about 0.5 to 1% this year.
GDP growth is expected to speed up again in the coming years to about 2.5-3% again and therefore the government, state and town budgets could be balanced by 2016.http://derstandard.at/1334796702647/Nach-langem-Ringen-Bund-und-Laender-zurren-Stabilitaetspakt-fest