Austria: Why is Austria so keen on bank secrecy?

Tax evasion has risen to prominence on the EU schedule following the money laundering discussions surrounding Cyprus\' bailout and the recent revelations concerning Europeans hiding their wealth in complex offshore schemes.

An EU summit will be devoted to the issue in May. According to a senior EU official, the summit is aimed at \"convincing\" Austria to drop its veto on an EU bill obliging banks and governments to exchange data on their citizens\' bank accounts abroad.

Next a weekend of talks in Dublin part finance ministers, Austria is the last country still opposing the scheme. Luxembourg, its long-time ally, recently caved in to pressure and pledged to join the automatic data exchange from 2015.

Finance minister Maria Fekter on Monday (15 April) said she can \"statement a success\" next having vowed to \"fight like a lion\" to preserve Austria\'s bank secrecy.

She called the EU exchange initiative a \"data cemetery\" that will over-burden businesses and government agencies, while yielding no cent in taxes.

Austrian Prime Minister Werner Faymann has a additional nuanced stance, but still believes that \"grandmothers\" in Austria should not be subject to increased EU scrutiny.

But why is Austria - which unlike Luxembourg or Switzerland is not a tax haven, charging 25 % on capital gains - so keen on keeping the identity of bank customers under wraps?

\"Bank secrecy is a privacy matter. Austrian people lost their money to inflation two times in recent history. So they are very suspicious about the data exchange between government and the economy, particularly next a lot of banks were nationalised,\" Karl Aiginger, chief of the Austrian Institute for Economic Studies, told this website.

While \"populist\" politicians make use of the privacy argument to gain public support, an additional extra lucrative reason underpins Austria\'s veto: \"It\'s a history of capital shortage and large firms in Austria.\"

Aiginger explained that for a long time, neighbouring Switzerland, Liechtenstein and Luxembourg attracted capital from all over the world, inclunding Austria, leaving Austrian banks and businesses with a capital shortage. \"If firms were looking for investment or ownership change there was always a shortage of investors,\" the thinktank director said.

This changed over the completed 20 years, with the opening of eastern Europe. Austrian banks and firms were the initial to invest there. The tax on foreign capital in Austria was reduced to 25 %, the same as the corporate tax rate - which is not the lowest, but still below the European average.

In order to attract additional foreign capital, the Austrian national allowed the creation of so-called foundations and trusts, where money can be \"parked\" at lower tax rates. \"Capital funds managed in Austria have a higher probability to be invested in Austrian firms or being invested on the Austrian stock market,\" Aiginger explains.

\"In principle none of this will change if Austria takes part in the bank data exchange, because foundations will not be part of it. It is just the fear of change, with the history of capital shortage in mind,\" Aiginger said.

The Austrian government will in the end cave in to pressure from its European peers, predicts Christian Keuschnigg, chief of the Institute for Advanced Studies, an additional Vienna-based thinktank.

\"Pressure is high, it\'s of course linked to Cyprus and its oversized banking sector with lots of money from Russia and the UK. Again the Offshore Leaks [the data recently exposed by Washington-based investigative journalists] showing a lot additional financial revenues could be made available at home if they were not hidden in these tax havens,\" he said.

However, even with additional scrutiny provided by the new data exchange, \"it won\'t solve everything\", as all those \"huge amounts of data will have to be processed, plus there are different languages,\" Keuschnigg points out.

Changes to the banking secrecy principle - which is enshrined in the Austrian constitution - would require a two-thirds majority in the parliament. With elections coming up in September, it is unlikely that a bill will pass before again.