Urgent need for action: budget deficits above the 3 percent Maastricht limit
Vienna (OTS) –
- High burden on the budget balance due to economic policy measures
- Increase in spending due to high inflation begins fully
- The dynamic revenue development of recent years is weakening
- Debt ratio rises despite high nominal GDP growth
- Potential “election sweets” and mandatory investments in climate protection are not even taken into account in the high deficits
The Office of the Fiscal Council expects a national budget deficit of 3.4 percent and 3.2 percent of gross domestic product (GDP) for 2024 and 2025, respectively. This means that the upper deficit limit of 3 percent of GDP will be significantly exceeded. The significant deterioration in budget balances compared to 2023 (-2.7 percent of GDP) is primarily due to the extension of the electricity price brake, the renewed suspension of energy levies, the housing package and the delayed, disproportionate increases in spending due to the high inflation of recent years. Despite the high nominal GDP growth, the high budget deficits will lead to an increase in the debt ratio in 2024 and 2025 by 0.7 and 0.6 percentage points pa to 78.4 percent of GDP and 79.1 percent of GDP, respectively.
High budget burden due to economic policy measures
Austria’s economic policy orientation remains highly stimulating, with expected structural (economically adjusted) deficits of 3.2 percent and 3.0 percent of GDP in 2024 and 2025, respectively. In addition to Corona aid and anti-inflation measures from previous years that continue to have a budgetary impact, additional packages with a budgetary burden of 1.7 billion euros in 2024 and 0.5 billion euros in 2025 were approved at the end of 2023 and the beginning of 2024. These include the further suspension of energy taxes, the extension of the electricity price cap and measures as part of the housing package.
Price increases in recent years have significantly increased budget deficits
The high price increase in 2022 and 2023 led to high revenue growth, especially in 2023, which weakens significantly from 2024 due to the decline in inflation. The price-related increase in government spending (including pension spending), however, will only have its full effect with a delay in 2024 and will continue, somewhat attenuated, in 2025. In addition, due to the recent price increases, government spending is not only increasing with a delay compared to government revenue, but is generally increasing more sharply. Overall, the price increase in recent years will significantly increase the budget deficit in 2024 and 2025.
Debt ratio continues to rise despite high nominal GDP growth
Above all, high primary deficits and the increase in interest expenses are causing the debt ratio to continue to rise. Given the continued high nominal GDP growth (2024: 4.6 percent; 2025: 4.4 percent), which will reduce the debt ratio by 3.4 percent and 3.3 percent of GDP in 2024 and 2025, respectively, the increase in the debt ratio appears to be increasing particularly worrying. At 78.4 percent and 79.1 percent of GDP, respectively, the debt ratio in 2024 and 2025 is well above the Maastricht target of 60 percent of GDP and the debt ratio before the COVID-19 pandemic (2019: 70.6 percent ).
No budgetary scope for “choice treats”
In Austria, in the past, there have always been high budgetary burdens before National Council elections due to newly passed measures, so-called “election sweets”. These were almost exclusively expenditure increases and mostly long-term effective measures. An analysis by the FISK office calculates an average budgetary burden in the first year after the election of 0.7 billion euros for the “election candy” of the election years from 2008 onwards. 2024 will be impacted by the “election sweets” adopted since 2008[1] the budget at 4.1 billion euros. The upcoming National Council election in 2024 poses a high budgetary risk due to possible “election sweets”. The high expected budget deficits do not provide any budgetary scope for this.
No planned budget scope for outstanding climate protection measures
As part of the EU “Fit for 55” package, Austria has committed to reducing its CO2 emissions by 48 percent by 2030 compared to 2005. In order to fulfill these obligations, extensive climate protection measures are required with corresponding budget decisions, which entail high unbudgeted costs. The costs of the additional necessary CO2 avoidance are not yet included in the budget deficits expected by the FISK office.
[1] Election sweets are defined here as measures that were decided in the calendar year of the National Council election without the coalition partner and/or were not included in the government program. Changes in the law due to court rulings are not taken into account (civil servants’ previous periods of service are taken into account).
Questions & Contact:
Fiscal Council Austria
Office of the Fiscal Council
+43-1-40420/7473
office@fiskalrat.at
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