Debts are exploding!

Austria’s budget gap is much bigger than expected

(Bild: stock.adobe.com/studio v-zwoelf)

The Fiscal Council warns that the government will not have to save 2.5 billion euros as previously thought, but over 4.4 billion euros in the coming years. The reason: the budget deficit is rising to around four percent and debts are exploding. A mixture of tax increases and a brake on spending is necessary.

"Budget consolidation must come, there is no way around it," says Christoph Badelt, head of the Fiscal Council, giving the parties a mandate for their coalition negotiations. The Ministry of Finance had been too optimistic about developments.

The Fiscal Council expects a budget deficit of 3.9 percent this year and even 4.1 percent next year. In 2023 it was "only" 2.6 percent. This is far above the EU rules, which is why Austria is threatened with an excessive deficit procedure. Public debt is also exploding. In 2025, the Fiscal Council expects a ratio of 81.6% of economic output to GDP, which is almost as high as during the coronavirus crisis.

(Bild: Krone KREATIV)

Due to the further tightening of EU debt rules from 2025, savings of EUR 4.4 billion will be required next year - "as a lower limit"! A similar amount would then have to be raised for each of the next four years. The government also needs money to invest in the future.

More taxes, less spending
In order to avoid killing the ailing economy at the same time, this would only be possible "with a mixture of tax increases and spending cuts", according to Badelt. Of course, structural reforms are also needed, but these would only have a long-term effect and would not quickly repair the state finances.

Climate bonus much higher than CO2 costs for households
One measure that would be effective in the short term would be the abolition of the climate bonus, which costs around two billion euros. In the period from 2022 to 2025, the population would even receive a total of 4.1 billion euros more bonus than the CO2 tax amounts to, which Badelt calls "overcompensation".

Covid aid and anti-inflation compensation such as the energy cost subsidy 2 for businesses (costing 1.7 billion euros) are also only slowly dwindling and are a burden on the budget. The Fiscal Council also calculates the costs of the floods at 1.1 billion euros.

Fiscal Council head Christoph Badelt: "There is no way around consolidation."

(Bild: APA/ROLAND SCHLAGER)

The basic criticism is that too many permanent increases in expenditure have been introduced, for example by adjusting social benefits and pensions in line with high inflation. Government revenue, on the other hand, is largely dependent on economic growth, which has been weak for years now. The hoped-for stimulus from consumption has also failed to materialize because Austrians prefer to save the real wage growth.

The Fiscal Council will present concrete recommendations on how to restructure the budget in mid-December.