SHORT LIST OF “PRACTICAL NECESSITIERS”

How Deregulated Financial Markets Affect Austrian Economic Policy

By Attac-Austria

[This article published on the Attac-Austria website February 24, 2005 is translated from the German on the World Wide Web, www.attac.at/662.html.]


1. DECREASING CAPITAL TAXATION

Capital flows to locations with the lowest taxes when capital traffic is liberalized without previously harmonizing tax rates. Assets are parked in tax havens. Transnational corporations declare their profits where they make no sales or hardly any sales.

The taxation of profits and assets declines through the subsequent tax competition. The contribution of assets to state financing in Austria fell from 3.7% to 1.3% since 1970. Taxes on firm profits were cut in half from 27 to 14 percent.

2. INCREASING TAX BURDEN OF LABOR INCOMES

When capital “is lacking” in state financing, the state must increasingly draw its revenue from the (immobile) factor labor. In Austria, 60 percent of all taxes and fees already come from the factor labor (in comparison, 10 percent come from capital).

3. ECONOMY AND EMPLOYMENT: LOWERING HIGH INTERESTS IN FAVOR OF MONEY OWNERS

In the global location competition, states compete for the favor of investment capital. High interests (to keep interest rates stable, inflation low and profits high) are “bait” alongside low taxes. The side-effect of high interests is a homemade recession.

When interests rise, fewer and fewer investments occur in production and employment, unemployment increases and the economy goes flat. The high interest policy of the European Central Bank has this effect. Its one-sided orientation in price stability is a concession to the “needs” of the financial markets (high interests “harden” the Euro).

4. HIGH INTERESTS ALSO AFFECT THE STATE BUDGET

The Austrian state presently pays nearly 100 billion shillings annually to its creditors. If the real interests of the state debt were as high as in the average of the seventies (0.4%), the interest- with an inflation of 2.1% (average in the 90s) – would amount to 2.5% or 40 billion shillings, around 60 billion less than today.

The state falls into a financing distress owing to high real interests, declining capital taxation and a stagnating economy. The increasing expenditures of the social state partly a consequence of this problem (higher unemployment) are declared the cause and social benefits are cut.

5. PENSIONS ARE DEPENDENT ON STABILITY OF THE WORLD ECONOMY

Privatization of pensions systems is part of the reconstruction of the social state. On deregulated financial markets, the pension funds cause those crises that endanger the payment of pensions. The latest crises occurred in Mexico, Southeast Asia, Russia and Brazil.

6. THE STATE MUST SUBSIDIZE SPECULATORS

In the latest crises, speculators were taken out of the mess with tax funds. In the 1994 Mexico crisis jointly caused by the US pension fund, the IMF crafted a $50 billion packet that can be seen as a “subsidy” to private pension funds. In the Asian crises, the (saving) subsidy of speculators amounted to $100 billion.

7. SHAREHOLDER MENTALITY INTENSIFIES PRESSURE ON LABOR MARKET

Shares are no longer purchased to gain dividends from the long-=term health of a business but to amass short-term price profits realized through low wages, rationalizations and dismissals.

Many investments that do no yield profits satisfying the claims of shareholders are cancelled under the dictation of shareholder value. The economy and employment remain below their possibilities.

8. ENVIRONMENTAL POLICY STAGNATES

Savings are made in environmental protection when states fall into financing distress. As only one example, the billions in incentives for reaching the Kyoto goal for climate protection are not available. Environmental consciousness generally falls to the background amid increasing fear of losing jobs and uncertain pensions.