Austria’s Fiscal Council Predicts Rising Deficits

Austria’s Fiscal Council Predicts Rising Deficits

 

Head of the Fiscal Council Christoph Badelt. Photo: APA/GEORG HOCHMUTH

The Austrian Fiscal Council has revised its budget deficit forecasts for 2024 and 2025, now expecting shortfalls of 3.9% and 4.1% of GDP, respectively. These figures represent a sharp increase from spring estimates, which anticipated deficits of 3.4% and 3.2%. Due to the growing budget gap, the council considers an EU deficit procedure “likely.” Austria’s debt ratio is expected to reach 79.7% in 2024 and 81.6% in 2025, far exceeding the Maastricht target of 60% and significantly above the pre-pandemic level of 71% in 2019.

Key Drivers: Tax Cuts, COVID-19 Support, and Inflation Relief

According to Senior Economist Johannes Holler, structural deficits account for the majority of the budget shortfall, with recession impacts playing a minor role. High inflation has contributed to social expenditure increases, notably through indexed benefits and public-sector wage adjustments. Additionally, “long-term economic policy measures” are driving up costs, including recent tax reforms, the elimination of “cold progression,” and extensive COVID-19 support programs. Military funding increases, rail infrastructure investments, and demographic spending pressures in healthcare, pensions, and elder care further burden the budget. The Fiscal Council also noted the doubling of the climate bonus as an “excessive” expense.

Calls for Cautious Consolidation and Political Responses

Fiscal Council Chair Christoph Badelt emphasized the need for substantial budget consolidation by 2025 under new EU fiscal rules, estimating a potential €4.4 billion in necessary savings. Badelt urged careful selection of consolidation measures to support Austria’s fragile economic recovery and suggested a mix of revenue and expenditure actions. The Fiscal Council also expressed skepticism about the Finance Ministry’s more optimistic deficit estimates, describing them as “unrealistic.”

Political reactions to the Fiscal Council’s assessment were pointed. FPÖ budget spokesperson Hubert Fuchs accused Finance Minister Magnus Brunner of “completely losing control over the budget,” while SPÖ counterpart Jan Krainer remarked that the findings were “unfortunately no surprise.” NEOS General Secretary Douglas Hoyos proposed an independent council to oversee economic reforms, calling it a step toward providing necessary oversight for Austria’s fiscal future.

 

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