Austria to Break EU Budget Rules, Think Tank Predicts

Austria to Break EU Budget Rules, Think Tank Predicts

IHS head Holger Bonin speaking on July 18, APA/GEORG HOCHMUTH/GEORG HOCHMUTH

 

Austria is expected to break EU budget rules this year, according to a forecast by Vienna’s Institute of Advanced Studies (IHS).

The institute’s 2024-2028 economic outlook, presented on Thursday, predicts that Austria’s government deficit will reach 3.0% of gross domestic product (GDP) in 2024.

If this forecast is true, Austria will violate EU rules requiring budget deficits to stay below 3% of GDP.

In response, the IHS recommends €2-4 billion in cuts, targeting environmentally harmful subsidies such as the commuter allowance and company car taxation.

“This is not popular and won’t win any election campaigns,” remarked IHS head Holger Bonin while emphasizing the importance of preserving “sensible investments,” particularly in research and development, and called for a thorough review of the budget.

Last week, the Austrian Institute of Economic Research (Wifo) projected an average annual budget deficit of 3.2% until 2028.

IHS director Bonin cautioned that the short-term savings package proposed by the institute will not be enough in the long run. He stressed the need for greater efficiency in education, health, and pensions, which the next government must address.

Bonin further advised the government to pursue “an efficiency-oriented tax reform,” suggesting reducing the tax burden on labor, increasing deductions for early retirement, and potentially raising taxes on alcohol, fuel, tobacco, and land.

In 2024 and 2025, economic growth in Austria is predicted to stand at 0.3% and 1.6%, respectively, followed by expectations of between 09% and 1.2% from 2026 to 2028. The IHS highlights that economic expansion will be underpinned by private consumption and corporate demand for durable goods, while export growth is anticipated to remain “weak”.

A recent report from the Organisation for Economic Co-operation and Development (OECD) also highlighted the financial impact of Austria’s aging population. The OECD warned that without reforms in health, long-term care, and pensions, public debt could escalate from 78% of GDP to 171% by 2060.

Earlier this month, Austrian Chancellor Karl Nehammer announced an update to the country’s income tax brackets. Read more: Austria Updates Tax Categories to Benefit Taxpayers

Austria will hold parliamentary elections on September 29, which will determine the country’s next government and its economic policies. Read our guide to the elections here: Austria’s Main Political Parties Explained

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