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The following OECD assessment and recommendations summarise chapter 1 of the Economic Survey of Austria 2005 published 31 May 2005. Chapter 1 identifies the challenges for which the subsequent chapters provide in-depth analysis and policy recommendations.
What are the main challenges?
Overall, the Austrian economy is maintaining its position among the top performing European economies. Austria’s capacity to take advantage of positive external developments contributed to this outcome. Nevertheless important challenges remain. First, recurrent use of one-off consolidation measures with a relatively high level of public sector debt-to-GDP ratio suggest that there is the need to reform budgeting procedures, including fiscal federal relations – the in-depth structural theme of this Economic Survey – in order to make the government sector more efficient and deliver high quality public services at a lower cost to society. Second, relatively low labour force participation rates of older workers will increase the burden of ageing on the Austrian economy. Hence, further reforms are needed to boost labour force participation and employment while at the same time encouraging productivity growth, notably by fostering competition and providing a better environment for innovation activities.
Cross-country differences in real income per capita, and their sources, 2002
Gap with respect to USA, %
What accounts for the increase in the government deficit?
The general government deficit, having re-emerged after a small surplus in 2001, deteriorated further in 2004, reaching 1.2% of GDP (Maastricht-definition), and overshooting the government’s objective set out in its Stability Programme by 0.5% of GDP. While adverse cyclical factors diminished in 2004, rising unemployment and sluggish domestic demand continued to weigh on the budget. The cyclically adjusted balance deteriorated by 0.1% of GDP as subdued outlays for personnel and increases in indirect taxes and social charges were out-weighed by reductions in personal and corporate income tax and accelerating outlays for the government’s investment stimulation package. The debt-to-GDP ratio has not fallen much and is still high at around 65%.
The general government deficit is set to rise further in 2005 and 2006, both on account of revenue shortfalls as well as earlier spending commitments. Major reductions in corporate and personal income tax, amounting to about 1% of GDP, will only be partially offset by spending restraint and higher revenues elsewhere. Childcare benefits are set to increase. Some progress can be expected concerning total general government spending which is expected to grow less than nominal trend GDP in 2005, as ongoing public sector reforms continue to moderate outlays for personnel. Moreover, one-off revenues, inter alia from the sale of real estate, higher co-payments for pharmaceuticals and increases in the tobacco tax and in social charges for pensioners bring relief to the budget mainly from the revenue side. In sum the deficit is projected to be just below 2% of GDP in both 2005 and 2006.
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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