Economic Survey of Austria 2009: Medium-term fiscal policy challenges

 

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The following OECD assessment and recommendations summarise chapter 3 of the Economic Survey of Austria published on 2 July 2009.

 

Contents

 

Fiscal sustainability needs to be safeguarded

The deterioration in Austria’s fiscal position, though less dramatic than in a number of other OECD countries, is substantial and unavoidable. Going forward, however, the long-term sustainability of public finances should be ensured, not least because it conditions the short-term effectiveness of macroeconomic stimulus. Therefore, it is important to spell soon out a credible path of fiscal consolidation to be embarked upon once the recession has ended, based principally on expenditure restraint but also, if necessary, on increases in less distortive taxes. Two factors should play a positive role in this regard. First, the recent introduction of rolling four year spending ceilings (which allow for cyclical spending on unemployment insurance and social protection) should help contain spending. Secondly, Austria has made progress with respect to containing ageing-related expenditure, especially on pensions. Nevertheless, efforts on this front should be maintained as risks and uncertainties remain high. Pension schemes for all civil servants should be fully harmonised, incentives for early retirement should be curtailed, disability pension schemes should be redesigned, a new sustainability mechanism for the pension system should be envisaged and health reforms should be implemented more resolutely.

 

Reform of fiscal institutions should help post-crisis consolidation

Before the onset of the recession, Austria had launched important fiscal institutional reforms. Strategic public expenditure planning and output-based budgeting are to be enforced from 2013. They involve explicit performance targets for all key public services, facilitating the assessment of the costs of public activities against their social benefits. Such progress with transparency should help reveal areas where resources can be utilised more efficiently. Combined with a desirable – albeit admittedly difficult – reform of federal fiscal relations, improved transparency of the costs and benefits of the Länder’s activities would generate savings. Indeed, as confirmed by a recent report of the Court of Audit, there is ample scope for savings in sub-central expenditures. Efforts at reforming federal fiscal relations, with an aim to better match service (spending) and funding (tax) responsibilities at federal and Länder levels will provide an occasion to re-assess and reform the structure of taxation. It should notably help promote the economically desirable, but so far elusive shift from a "work and income-based" to a more "wealth and consumption-based tax structure. A re-appraisal of the tax system should look at all of these issues.

 

How to obtain this publication

 

The complete edition of the Economic Survey of Austria is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.

 

Additional information

For further information please contact the Austria Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat’s report was prepared by Rauf Gönenç, Lukasz Rawdanowicz and Christian Hederer under the supervision of Vincent Koen. Research assistance was provided by Béatrice Guérard.

 

 

 

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