Jörg Schelling, ÖVP finance minister
Tax reform: Jörg Schelling, ÖVP finance minister © Dieter Nagl/AFP/Getty Images

Vienna was festooned this autumn with massive election posters, the large portraits and political slogans masking the façades and statues of its historic architecture.

But the contest to govern the Austrian capital was more than just a colourful city election, and it grabbed attention beyond the city’s borders. The rise of the far-right Freedom Party (FPÖ) highlighted the tensions created by waves of asylum seekers who have entered Austria this year, adding to the pressures on a political system struggling to implement an economic reform agenda.

For decades, Austrian politics has been dominated by two main parties — the Social Democrats (SPÖ) and the centre-right People’s Party (ÖVP). The system was upset in the 1990s by the rise of the FPÖ, then led by Jörg Haider, the ambitious governor of Carinthia, who died in a car crash in 2008.

The latest rise of the political far right — across Austria as well as in Vienna — has again cast uncertainty over the durability of the country’s traditional, consensus-orientated two-party politics. During campaigning for last week’s Vienna elections, the FPÖ played on fears of uncontrolled immigration and even looked as if it might end 70 years of Social Democrat mayors in the capital city. In the end, the SPÖ won 39.5 per cent of the vote, but the FPÖ reached a record 31 per cent.

For the coalition government of Werner Faymann, the SPÖ chancellor, the surge in FPÖ support can be attributed to the special situation created by Europe’s refugee crisis. “These are really difficult times,” says one government minister. “Daily the newspapers are running pages of endless photographs of refugees. It is very easy for Austrians to become frightened.”

Another coalition politician complains that the legitimate search for asylum by those fleeing wars has been confused with a broader debate about immigration. “The press mashes everything together.”

Most of those who arrived in Austria, crowding on to its trains and filling stations in Vienna and Salzburg, travelled on to Germany or other European countries, such as Sweden. But Austria’s difficulties would escalate if Germany tightened its borders. While the country has seen waves of immigration in the past — for instance as a result of the Yugoslav wars in the 1990s — there are widespread concerns about whether incomers are successfully integrated into Austrian life, especially if they do not speak German.

The risk is that tensions created by the refugee crisis complicate the implementation of a broader economic reform agenda. Business leaders complain that Austria’s traditional “social partnership”, which encourages co-operation between trade unions, business organisations and whichever of the two parties is in power — currently, it is both — has struggled to adapt to modern competitive threats. “For 30 years, it was a positive — but now it is a brake on development in Austria,” complains one company executive.

Hans Jörg Schelling, a former businessman who became ÖVP finance minister a year ago, admits: “We are not fast enough and sometimes have not realised that reforms are needed. The mood is not there to do something fundamental — it tends to be cosmetic. The job of a finance minister is to break out of that thinking”.

Mr Schelling has embarked on tax reforms and wants to reduce Austria’s fiscal deficit. But it is hard to find consensus in Vienna that wholesale changes are required.

Jan Krainer, SPÖ finance spokesman in parliament, puts the emphasis of tax reform on shifting the burden away from wages on to capital gains tax or inheritance tax — rather than rewriting Austria’s economic model. “I think that we’re doing quite well in international markets — our exports are rising.”

He accepts, however, that the economic mood has not been helped by political dithering. “The discussion about changing our tax system is taking too long. We should have been done with it a long time ago. We haven’t set out a clear path of what we hope to achieve and by when. That has created uncertainty.”

Against that backdrop, a bumpy time lies ahead in Austrian politics. As in Germany, the government’s reaction to the tide of asylum seekers could define its reputation. So far Mr Faymann has taken a similar line to Angela Merkel, German chancellor, seeking to burnish the image of a country welcoming to foreigners.

“The FPÖ was always a foreigner-hostile party — that’s not new. It is strengthening now because they use a chain of arguments to say they [those arriving in Austria] are dangerous, they won’t integrate . . . That increases anxiety, especially at a time when economic growth is not so good,” Mr Schelling says.

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