The centre-right People’s Party has shifted its stance about forming a government with the far right
Government formation talks between the far-right Freedom Party (FPO) and the centre-right People’s Party (OVP) commence today. These come after talks between the OVP, the Social Democrats (SPO) and New Austria (NEOS) collapsed, resulting in Karl Nehammer’s resignation as OVP leader and chancellor. Nehammer’s departure opens the door for an FPO-OVP government with FPO leader Herbert Kickl as chancellor.
What next
Subsidiary Impacts
- Conflict with the EU is likely if Kickl becomes the next chancellor.
- Given Kickl’s Russian-friendly views, Austria’s allies will be more cautious about sharing sensitive information with Vienna.
- Germany’s economic downturn will ensure that Austrian GDP growth remains sluggish over the next year.
Analysis
The FPO won the parliamentary election held in September with 28.8% of the vote, short of an absolute majority. It was excluded from forming a government because Nehammer refused to cooperate with it.
The OVP and FPO have cooperated in government before, both at the federal and state level, but Nehammer rejected cooperation on this occasion over the prospect of FPO leader Herbert Kickl becoming chancellor. Critics accuse Kickl of demonstrating sympathy towards Nazi Germany and supporting unconstitutional policies.
The FPO’s exclusion left talks between the OVP, the SPO and NEOS as the only other realistic option for government formation (see AUSTRIA: Parties face tough coalition talks – November 26, 2024).
Negotiation collapse
The main obstacle in the OVP-SPO-NEOS talks was the budget.
In 2024, Austria’s budget deficit rose above the EU’s limit of 3% of GDP. The Austrian Institute for Economic Research projects a rise to 3.7% in 2024 and 4.0% in 2025. Austria must submit proposals for reducing the deficit to the European Commission on or before January 21 to avoid initiation of an excessive deficit procedure (see EU: New fiscal rules will restrict budgets – June 20, 2024).
While the three parties agreed on a timeline to consolidate the budget, they ultimately could not agree on how to achieve this. The OVP and NEOS wanted to reform Austria’s pension system by gradually raising the retirement age to 67, a measure the SPO opposed. The SPO also opposed the OVP’s other reported spending cut proposals, which would have frozen salaries for state employees (including police officers, care workers and teachers), frozen pensions and reduced the healthcare budget by as much as 20%.
Taxes were a major obstacle. The OVP and NEOS were opposed to new impositions, especially the SPO’s proposed wealth and inheritance taxes.
In the end, the OVP quit the negotiations over the SPO’s proposal for a levy on bank profits.
Both NEOS and the SPO opposed the OVP’s counter-offer: increasing the standard rate of value-added tax from 20% to 22%. Other ideas — including reducing the commuter tax allowance or raising duty on diesel — also prompted discord.
Following the collapse of the talks and Nehammer’s resignation, the OVP named party secretary Christian Stocker as its interim leader.
FPO-led government
Stocker announced his party’s intention to enter negotiations with the FPO about forming a government in which the OVP would be the junior partner.
Reflecting shifting attitudes in the OVP regarding cooperation with the FPO following Nehammer’s resignation, Austrian President Alexander Van der Bellen said “voices… that ruled out cooperation with an FPO under Herbert Kickl have become much quieter”.
Economic policy
On economic policy, the FPO and OVP are likely to find areas of agreement. These may include a commitment to instituting no new taxes, raising the pension age to 67, creating tax incentives for Austrians to work longer, cuts to corporation tax and lower non-wage labour costs for employers.
The two parties might also look to bring Austria’s budget deficit down over five years instead of seven. However, their commitment to reducing existing taxes and not introducing new ones would make this challenging and necessitate higher cuts to public spending.
Asylum and immigration
The parties are largely compatible on immigration. In addition to tougher border checks, they support repatriating Syrian and Afghan refugees and establishing centres in third countries to process migrants.
The OVP will be less comfortable with some FPO policy proposals on migration, including the abolition to the right of asylum, limiting social benefits to Austrian citizens only and stripping naturalised Austrians of citizenship if they are found guilty of committing a crime. If the next government attempts to implement such policies, they will most definitely be challenged by the courts.
Ukraine and Russia
Another potential obstacle in forming a government relates to the parties’ positions over Ukraine and Russia. The far right wants to end Austrian financial support for Ukraine and participation in sanctions against Russia. It is also wants to end Austrian participation in the European Sky Shield Initiative, a common air defence programme.
The FPO demands a re-evaluation of all Austria’s international agreements.
Should Kickl become chancellor, he will undoubtedly align himself with Hungarian Prime Minister Viktor Orban and Slovakian Prime Minister Robert Fico at EU Council meetings in resisting aid for Ukraine and its accession to the EU.
The FPO and OVP differed in terms of energy ties with Russia ahead of the September election, but external developments mean that issue is now unlikely to be a source of conflict.
Austrian energy firm OMV terminated its gas contract with Russia’s Gazprom on December 11, and the transit of Russian gas from Russia to Austria via Ukraine ended on January 1. The latter development takes the gas situation out of Austria’s hands: Ukraine would not allow the transit of Russian gas to Austria even if it wanted to purchase it or Russia wanted to sell it to Austria.
OMV will have to concentrate on sourcing gas from alternative buyers such as Norway.
FPO strength
An FPO-OVP government with Kickl as chancellor and a yet-to-be-named OVP candidate as vice-chancellor is now the most likely outcome following September election. Negotiations between the two parties, whether successful or not, are likely to progress quite quickly.
The FPO will have more leverage in the negotiations, as it won the election and will be emboldened by the fact that the OVP initially rejected it but now entertains the prospect of governing together. Moreover, the FPO will feel relatively relaxed about the outcome of the negotiations, as should the parties fail to reach an agreement, the only remaining path forward would be new elections.
The FPO’s support has continued growing since the September vote, seemingly fuelled by its exclusion from government formation talks. On November 24, it won the state elections in Styria for the first time.
The most recent national opinion polls put the party on 35%, ahead of the OVP on 22%, the SPO on 20%, NEOS on 10% and the Greens on 8%.
