Austria's Answer to Inflationary Profits and Taxation.

Abstract As the basis for far-reaching decisions on the capital, labor, consumer and supply market, accounting records influence our economic life to no small degree. These decisions are made of course, upon the assumption that the data recorded in the accounts are relatively correct. In an economy in which the government exercises due care with its fiscal and economic policy and protects the currency from loss of value, the accounting data can generally be relied upon; however, in times of inflation, as well as in times of deflation, the accounting system fails to show correct figures. This unreliability is due to the presupposition upon which the accounting system works: namely, that the unit of currency is always equal in value regardless of time. That this reliance upon historical cost can lead to undesirable results has been demonstrated very well in the Twentieth Century when most of the European countries experienced extreme inflation following World War II. Austria was one of the countries which experienced such an inflationary period. Here, however, sweeping changes were made in the income accounting for tax purposes. These changes had a marked effect upon and were greatly responsible for stabilizing the financial structure which has formed the basis for the greatly improved economy Austria is enjoying today.