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The following is the Executive Summary of the OECD assessment and recommendations, taken from the Economic Survey of Austria 2005 published 31 May 2005.
The Austrian economy has demonstrated the capacity to take advantage of positive external developments. Important challenges remain, however, in two areas:
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Fiscal performance needs to be improved despite substantial progress in securing the sustainability of government finances: government debt is still relatively high, fiscal consolidation also incorporates significant one-off measures and fiscal federal relations are often inefficient.
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Trend growth is still held back by low labour force participation of older workers – also a potential source of future growth deceleration, high seasonal inactivity, relatively weak productivity growth in the services and a sub-optimal environment for innovation activities.
Increasing the efficiency of the public sector
Significant expenditure cutting measures – which are not yet fully specified – will be needed to reach the government target of a balanced budget by 2008. The introduction of a medium term budgeting framework would help to strengthen the necessary prioritisation and output orientation of the budgeting process so as to avoid the economic costs of ad-hoc measures. Fiscal sustainability calculations should be regularly carried out for all levels of government. Further tax reforms should focus on base broadening in exchange for statutory rate cuts.
Reforming fiscal federal relations
Sub-central levels of government rely largely on shared taxes, for which the federal government has full legislative responsibilities, and on federal government transfers. A large proportion of municipalities’ and states’ tax and transfer revenues are earmarked to specific spending programmes, often in terms of extra-budgetary funds, and there is widespread co-financing of spending items between the states and the municipalities. A complicated system of revenue redistribution reduces transparency. Reforms should focus on improving the revenue structure of lower levels of government. Dispersed decision making, notably in the health care system, but also as regards supra-regional infrastructure planning, should be harmonised and the scope for co-operation in service provision strengthened.
Raising labour force participation of older workers and reducing seasonal inactivity
Labour force participation needs to be increased by more effectively curbing early retirement and terminating the fiscal subsidisation of seasonal inactivity. Employers should fully finance the costs of early retirement on account of onerous work while invalidity pension schemes are in urgent need of reform.
Improving the environment for innovation
A well educated labour force is key for an innovation-minded economy. Austria is spending a lot for its education system, but the outcomes are falling short of performance in many other countries. International experience suggests that a combination of national standards with a higher degree of school accountability for outcomes and a larger degree of freedom as concerns educational instruments and employment of teachers would help. Competition should be strengthened. As concerns start-ups of enterprises, the focus should be shifted from granting tax concessions to the improvement of general framework conditions, such as lowering barriers to entry and administrative burdens on entrepreneurial activity.
Return to the Economic Survey of Austria 2005 homepage.
A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
Ein Policy Brief auf deutsch kann als pdf Datei heruntergeladen werden. Es enthält die Gesamtbeurteilung und Empfehlungen der OECD auf den Seiten oben.
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