OECD Economic Surveys: Austria 2026

The general government budget deficit widened in 2024, triggering a fiscal consolidation plan designed to bring back the deficit below the 3% EU rule by 2028 and reduce the debt burden over time. The planned steady fiscal adjustment should be implemented, and additional fiscal reforms initiated to contain spending increases and create fiscal space to cope with mounting spending pressures from ageing and climate-related expenditures.

The general government deficit widened to 4.7% of GDP in 2024. Fiscal consolidation began in 2025 and aims to bring the deficit below 3% of GDP by 2028. While fiscal support helped cushion the economy during a period of weak private demand, a sustained adjustment is now essential to stabilise the debt ratio. The government should proceed with its planned gradual medium-run consolidation plan to 2031. Developing a long-term fiscal strategy focusing on reducing social spending, improving spending efficiency and enhancing the fairness and effectiveness of the tax system, would help with the implementation of the government’s consolidation plan.

Austria carries a relatively high public debt burden and faces mounting long-term fiscal pressures. Over the medium to long term, rising costs from population ageing, the green transition, and the maintenance of Austria’s comprehensive welfare system will intensify budgetary strains. Pension, health, and long-term care expenditures are already substantial, and ageing will further increase spending while eroding the tax base. Additional investment will also be needed to support the mitigation of and adaptation to climate change, while the shift to electric vehicles will reduce fuel-related tax revenues in the absence of reform. Developing a long-term fiscal strategy for spending and taxation would help to prepare for these pressures on public finances.

Efficiency gains can create fiscal space. Savings could come from better targeting and managing social transfers, and enhancing the efficiency of public procurement and outsourcing. There is room to making family benefits more progressive by phasing out transfers to higher income people. The expected retirement of large cohorts of civil servants provides an opportunity to reorganise and further digitalise the public administration. Regular spending reviews and stronger evaluation mechanisms would improve prioritisation. Reforming the fiscal equalisation framework—currently based largely on population rather than needs or performance—would strengthen incentives for cost efficiency and innovation.

A more growth-friendly tax structure would support medium-term consolidation and long-term sustainability. Austria’s tax system remains heavily dependent on labour income, while underutilising more efficient tax bases such as property and inheritance. Austria does not levy inheritance or gift taxes, except for real estate transfer duties. Rebalancing the tax system away from labour, in particular for low-income people, by lowering social security contributions and personal income tax, alongside raising more revenues, including from property taxes, VAT and a well-designed inheritance and gift tax could enhance both equity and efficiency while safeguarding fiscal sustainability.

Austria’s business dynamism has been in decline for many years. Rising labour and energy costs have eroded firms’ price competitiveness, while deeper structural weaknesses persist. Reviving productivity requires easing regulation, accelerating digitalisation, strengthening competition in key markets, and reducing occupational licensing requirements. Innovation must translate more effectively into market products.

While firm entry and exit rates have been fairly stable in manufacturing, they have fallen significantly in services—the largest sector of the economy. Post-entry employment growth among new firms is low. Medium to long-run challenges related to energy vulnerabilities, higher competition from new contenders, innovation and digitalisation gaps, and trade risks will require a faster pace of reallocation between firms and sectors than in the past.

As a small open economy with few natural resources, the Austrian economy is dependent on imported fossil fuels for energy and on specialised imported intermediate goods. As global trade restrictions are growing, securing the sourcing of key inputs for industry and the economy is crucial.

Austria benefits from a strong innovation ecosystem and high R&D and innovation spending. Austria ranks highly in design and patent applications, but the transformation of these outputs into new-to-market and new-to-firm innovations is among the lowest in the EU. Policies that help mitigate the risks associated with developing and introducing new products—particularly through financial incentives—have a crucial role to play.

Digitalisation of the economy and of businesses is limited by a low coverage of high-speed broadband and shortages in advanced digital skills. Fully implementing and expanding access to digital programmes will strengthen Austria’s foundation for a digital society and help workers stay resilient in the face of digital disruption.

Market concentration remains high across many sectors. Austria maintains somewhat high barriers to entry and burdensome administrative requirements. Easing entry requirements can boost productivity in professional services and in sectors that depend on them. Strict oversight and cooperation between the Competition Authority and sector regulators would help uphold fair competition.

Price-to-income ratios and rents have risen sharply over the past two decades, mainly driven by the for-profit segment in large cities. Reassessing regularly the financial situation of tenants in limited-profit housing and increasing rents for those who no longer satisfy the eligibility criteria would support limited-profit housing supply. Revising property taxation would improve market efficiency. Streamlining and digitalising building permits and improving land use through better coordination would enhance supply efficiency.

Austria’s housing model has long provided affordable and excellent quality homes, with rented and limited-profit housing playing a major role, especially in cities. However, price-to-income ratios and rents have risen sharply over the last 20 years (Figure 2).

Austria has relied heavily on social housing, mostly delivered through the limited-profit sector. Recent rises in construction and land costs, together with the reduction in public expenditure on social housing, contributed to reduce limited-profit share of total supply. Increasing rents for limited-profit tenants who no longer satisfy the eligibility criteria, targeting the social housing stock to those more in need without loosing social diversity and extending indexation to prices for the whole rent for limited-profit tenants, compensating low earners with housing allowances, would help limited-profit housing supply to keep pace with rising demand and favour its price-dampening effect.

Austria imposes one of the lowest rates of recurrent immovable property tax within the OECD, and the tax base does not reflect the current market value of properties. Transitioning the tax base calculation from outdated cadastral values to contemporary market valuations would improve fairness and effectiveness. The introduction of recurrent taxes on vacant dwellings and the revision of the current very low taxation on unused constructable land would mobilise and stimulate supply.

Complex land use decision processes and building permit procedures constrain housing supply and drive-up costs. Strengthening the monitoring and enforcement powers of the Austrian Conference on Spatial Planning (ÖROK) would improve land planning efficiency. Expanding and improving public transport networks and infrastructure and increasing density in peri-urban areas proximate to transport infrastructure would contribute to lower price pressures in urban centres. Digitalising the entire permitting process, streamlining it by consolidating legislation, requirements and administrative steps at the federal level, introducing clear national statutory deadlines for building permits and implementing tacit approval mechanisms for simpler, lower-risk projects would enhance supply responsiveness.

The direct emissions and energy intensity of Austria’s residential sector are above the OECD averages. Consolidating all financial incentives to avoid dispersion and duplication, and creating a digital, clear, user-friendly one-stop shop for applicants would foster the demand for residential building renovation. Expanding construction industry capacity would assure supply can meet the rising demand.

Population ageing is shrinking the labour force while driving up social spending. Raising employment among women and older workers would help ease labour shortages. Linking the statutory retirement age to life expectancy gains and tightening access to early retirement would strengthen pension sustainability. Improving primary care, advancing health system digitalisation, and better targeting long-term care (LTC) allowances, alongside expanding the LTC workforce, would enhance both financial sustainability and service capacity.

Austria’s population is ageing rapidly, with fewer prime-age workers and a growing share of older people and retirees. This trend, driven by declining fertility and rising life expectancy, poses risks to economic growth, productivity, and the long-term sustainability of the pension, health, and long-term care systems (Figure 3).

Ageing will reduce the working-age population and intensify labour shortages, while labour market participation and employment, particularly among women and older workers, remain below many OECD peers. Encouraging wage structures that reflect productivity, performances and tasks rather than seniority, tightening access to early retirement, and better targeting old-age subsidised part-time and partial retirement schemes would help extend working lives. Expanding affordable childcare, promoting shared parental leave, and phasing out single-earner tax credits would reduce barriers and disincentives to female labour force participation.

Pension spending, already among the highest in the OECD, is projected to rise further until 2035. Linking the statutory retirement age to life expectancy gains, slightly lowering accrual rates, and reforming the indexation of pensions to inflation by setting a rule to differentiate adjustments between low and high pensions would strengthen the long-term sustainability and fairness of the system.

Austria’s public health spending is among the highest in the OECD, yet system efficiency remains below potential. Fully and rapidly implementing recent reforms and further streamlining the structure and coordination of the health system would strengthen both efficiency and sustainability. Expanding and enhancing primary care, particularly by further deploying multidisciplinary primary health care units and improving the attractiveness of general practice, especially in rural areas, would help reduce the heavy reliance on hospitals. Removing legal and technical barriers to health data interoperability would enable better governance, research, and prevention. Allowing pharmacists to substitute branded drugs with generics without prior physician approval and capping reimbursement at the least expensive generic’s price would lower high outpatient pharmaceutical costs.

The ratio of formal long-term care (LTC) workers to people aged 65 and over is below the OECD average, while ageing will continue to drive up demand. Improving LTC working conditions, attracting more male workers, and better targeting the LTC allowance would help secure workforce supply, sustain service quality, and preserve financial sustainability.