The Austrian Consolidation Program

Transcription

1 The Austrian Consolidation Program With the consolidation program the Austrian federal government is setting the course for a structural and sustainable consolidation of the federal budget. In 2016 the general government budget according to the System of National Accounts (Maastricht-definition) will be balanced. In 2011, the preliminary general government Maastricht-deficit was at 3.3% of GDP. The structural deficit of the general government will reach 0.6% of GDP in The debt level will increase to 75.4% in 2013 and then fall to 71% of GDP in Solid public finances are a necessary precondition for economic growth, for new jobs, and for social stability. Therefore, the federal government decided to stop the long-lasting trend of increasing public debt. It is not acceptable to limit the room for manoeuvre in budgetary terms for future generations by ever-increasing public debt. The federal government will therefore create budgetary space to invest into the future and decrease the fiscal burdens for citizens and business. This is why there is no way around a sound and comprehensive budgetary consolidation program. The three main targets of the Austrian federal government s budgetary and economic policies are the following: Achieving a balanced budget by 2016 and ensure long-term sustainability by decreasing the debt ratio; Fostering investments in the areas of education, university, R&D and infrastructure to support growth and employment; Accelerating structural reforms in public administration, competition policies and in labor markets. To balance public finances in a comprehensive way, the Austrian federal government agreed upon a consolidation program for The overall volume of this program will be 26.5 bn Euro bn Euro will be contributed by the federal government, 1.4 bn Euro by the social insurance system, and 5.2 bn Euro by states and municipalities.

2 This austerity package is: Socially balanced as all groups of society contribute to the consolidation; Economic growth and investments won t be constrained; Jobs will be preserved; Urging problems will be faced (reforms in the pensions, subsidies, public administration, and in the health care sector); Consolidation is focused on the expenditure side (three quarters), whereas only one quarter will be consolidated on the revenue side. The main areas of expenditure cuts will be in public administration, pension system, unemployment insurance system, health care sector and in public companies and subsidies. Public administration including public servants: Pay freeze in 2013 Only moderate pay increases in 2014 Hiring freeze (exception: education, police, and judiciary services) Cutting of running costs (discretionary spending) Merger of administrative entities (i.e. closing of military hospitals) Altogether, public administration will contribute 2.5 bn Euro to the consolidation program. Pension and unemployment insurance system Only moderate increases for pensions in 2013 and 2014 Measures to increase factual retirement age (for instance by increasing the eligibility criteria for early retirements) Measures to reduce disability pensions: No early retirement below the age of 50 Measures to re-integrate employable people into the job market Stricter rules for allowances for part-time workers before retirement Harmonization of pension law for commercial and agricultural businesses Increase of social insurance contributions Altogether, the reforms in the pension and unemployment insurance system will contribute 7.3 bn Euro to the consolidation program.

3 Health care sector Reform of the compulsory social insurance system Reform of the hospital sector Expenditures should not increase faster than GDP By 2016, these measures will add up to about 3.4 bn Euro. Public companies and subsidies Reduction of costs at the Austrian Federal Railway (Infrastructure and operational costs) Measures to decrease early retirement in the Austrian Federal Railway Reform of subsidies in general Altogether, 2.6 bn Euro will be saved in the area of public companies and subsidies. With regards to the revenue side (taxes), tax evasion will be made more difficult and the tax bases will be increased. The main measures in the fiscal area are the following: Tax on income after re-zoning of property and taxes on real estate and immovable property sales Restrictions on group taxation laws Value added tax: Stricter rules for construction projects Value added tax: extension of VAT deductions (above all for immovable property) Abolishing of the mineral oil tax privileges for busses, railway vehicles, and for farmers Additional income tax for high incomes by decreasing the tax privileges for the 13 th and 14 th salary Financial transaction tax starting in 2014 Taxes on capital gains on Austrian bank accounts and investment portfolios in Switzerland Reduction of tax expenditures for housing savings schemes and private pension insurance

4 These additional taxes will add between 1.8 and 2 bn Euro a year between 2013 and At the same time, proactive measures to support Austria as a business location and ensure Austria s future will be introduced or sustained: Global budgets for universities will increase starting from 2013 by 250 m Euro a year. In the education area budgets will increase by about 300 m Euro annually. The increases for universities and all-day schooling already approved in 2010 (about 80 m Euro each) will be sustained. Subsidies for research will be added up by 100 m Euro a year up to The long-time care fund will financed until Subsidies for energy saving measures for housing will be sustained at the current level of 100 m Euro annually. States and municipalities will also play their part in the consolidation program. They fully support the objectives of the federal government. Their financial share of the consolidation is agreed at 5.2 bn Euro. The legal basis for the whole consolidation program will be laid down in the law accompanying the federal medium-term expenditure framework law. Further changes will be incorporated into the annual budget laws. The consolidation package will have little negative effects on growth, and will increase growth in the medium- to long-term. This will help Austria sustain its position as an attractive business location. The potential for growth in Austria will be enhanced: Labor force potential will increase by higher education and the planned measures in the pension area. Higher efficiency will be reaped by different measures of administrative reforms. Therefore, the decreasing public expenditure quota will improve Austria s position as a business location, as investors and employees won t have to include future tax increases into their calculations. On the revenue side, the quality of Austria as a business location and the purchasing power will be ensured. The main focus is on increasing the tax bases. Tax evasion will be made more difficult, which distributes the burden of consolidation fairly. Higher tax fairness will further increase acceptance of the tax system and social cohesion.

5 The consolidation package is an important step forward to implement the new debt brake rule already approved in December This debt brake rule calls for a balanced federal budget without new debt. In practice, the federal government will have to decrease the structural federal deficit to 0.35% of GDP by 2017 (General Government: 0.45% of GDP) and then stick to this limit. By this strict limit on deficits the debt-to-gdp ratio will fall in the medium-term as well. The limit on deficits can be adjusted according to the economic situation, and therefore, this rule gives space for anti-cyclical budgetary policies. With this debt brake rule the federal government complies with the tightened regulations of the European Stability and Growth Pact, which makes arrangements for balanced budgets of the general government in the medium term. Consolidation Programme Main Indicators in % of GDP Maastricht-Deficit General Government -3,3-3,0-2,2-1,5-0,6-0,1 of which Central Government -2,8-2,5-1,8-1,3-0,6-0,2 Structural Deficit General Government -3,1-2,6-1,9-1,5-0,9-0,6 of which Central Government -2,5-2,1-1,5-1,3-0,8-0,6 Public Debt 72,2 74,8 75,4 74,7 73,1 71,0