WIFO boss for more targeted help

Felbermayr considers the state aid measures, which are now estimated at around 37 billion euros, to be crucial tools in the fight against the ongoing price and energy crisis. But the sums are “already large”, although it might not have had to be so much if the watering can hadn’t been used so often.

This criticism is not new, as Felbermayr recalled in this context – “we could have helped more effectively” in dealing with the coronavirus crisis. The watering can is “usually not the most efficient,” according to Felbermayr, so we should now “create the conditions so that we can help in a more targeted manner in the next crisis”.

“Unfortunately still high numbers”

Felbermayr repeatedly regretted that it had not been administratively feasible to link aid such as the electricity price brake to household size and income levels. On the one hand there are not enough incentives to save energy, Felbermayr affirmed, and on the other hand this also fuels inflation. And with this “unfortunately we will have to live with high numbers for a long time, even if they will decrease”.

The Ministry of Finance has “spent a lot in recent years, paid out a lot of real help, but the more you support, you drive demand, and that drives inflation”. According to Felbermayr, the example of energy cost subsidies for companies also makes it clear that measures like these make sense temporarily – but at the same time “one cannot permanently subsidize companies’ energy costs”.

“Obviously, prices will increase over the long term”

For this year, WIFO expects annual inflation of 6.5 percent. The forecast could possibly be lowered if energy prices remained at the current level. This is lower than feared due to well-stocked gas storage facilities and a mild winter so far.

“It is already clear that wage increases lead to a sustained increase in prices,” says Felbermayr. But he doesn’t see a wage price spiral, “I don’t like the word spiral in this context”. The recent collective bargaining negotiations, some of which have become heated, have shown “that the wage policy based on social partnership actually works – even in times of stress”. Purchasing power will increase thanks to the deals for this year and next year.

Too little supply compared to demand

According to Felbermayr, it is also necessary to consider how rent increases can be flattened out, it is “not natural” that rents rise with the consumer price index. The increase in rents has already taken place in recent years and has now been exacerbated by inflation. Not only are rents going up, so are operating costs.

Basically, there is too little supply in the domestic metropolitan areas compared to demand, which is heating up prices. “I would warn against further subsidies without thinking about it fundamentally.” There is also international evidence of increasing monopolization, and it is also a matter of competition.

Call for strengthening competition authority

In connection with the competition topic, the scientist called for the Federal Competition Authority (BWB) to be strengthened, which should be “tackled very precisely” on such topics. “The resources definitely need to be increased,” says Felbermayr about the BWB’s equipment. It could be that there are price gouging due to strong concentrations. “It’ll do you good to take a look.”

The WIFO boss regretted that there was no major reform of unemployment insurance because the ÖVP and the Greens could not agree. The issue must be addressed in the next legislative period. Regarding better incentives to continue working even at a slightly older age, Felbermayr said that although this is good, it is also not a real lever in terms of the number of workers who can be hired. Rather, the part-time level in this country is far too high and far too few women are in the workforce: a sustainable reform also needs a “cocktail of measures”.