New calculation shows:

Spending brake halves debt in 20 years

With a debt brake, politicians impose strict rules on themselves in order to reduce expenditure.

(Bild: Krone KREATIV/stock.adobe.com, Martin A. Jöchl )

Without reforms, Austria's debt will explode from the current 80 percent to over 130 percent of economic output by 2060. In some countries, such as Switzerland, governments have already taken countermeasures. An analysis shows that a "spending brake" would drastically reduce the debt ratio to 40 percent of GDP by 2050.

Politically, the constitutional debt brake is currently a hot topic in the Federal Republic of Germany. The measure could soon be weakened or abolished. Switzerland, on the other hand, is not even thinking about abolishing it and has been using a spending brake for 20 years. The simple principle is: expenditure must not exceed expected revenue, which is de facto the basis of responsible economic activity.

Switzerland as a role model for budget discipline
Switzerland reacted to the sharp rise in national debt in the 1990s when it introduced the spending brake - with success. After over 60 percent at the time of introduction, debt has been reduced to just 40 percent of economic output, around half of the Austrian figure. "Switzerland would be a good role model. But if Austria does not implement reforms, the gap to Switzerland will widen even further," warns Agenda Austria economist Dénes Kucsera.

An analysis by the liberal economic think tank shows that if the spending dynamic continues to develop as expected and Austria gradually continues to run high deficits, then Austria is facing Greek conditions. By 2060, the debt ratio would be 134 percent, and the 100 percent mark would be reached in around 20 years.

(Bild: Krone KREATIV/stock.adobe.com)

Higher retirement age would clearly alleviate the situation
However, there are ways out of this "debt trap" and politicians can alleviate the problem. Agenda Austria has calculated two scenarios for this. Politicians could link the retirement age to life expectancy, as is already the case in a quarter of western industrialized countries. The national debt would then "only" rise to 100 percent of GDP instead of 130 percent. However, this would still not "solve" the problem, as government debt would still rise in relation to GDP.

However, a second calculation shows that if there is a brake on spending, debt will fall dramatically. In 2060, instead of the worst-case scenario of 130%, the debt ratio would then only be 27% - assuming that the state has a balanced budget every year from now on. In this way, the state would automatically reduce its debt year on year through inflation. This is because if GDP - the basis for the debt ratio - increases and the debt remains the same in absolute terms, the ratio will fall.

However, such a debt brake does not only have supporters. Some economists criticize the fact that the state is "artificially" restricting future investments, for example in climate protection or education. Agenda expert Kucsera counters this argument: "If I need more money in one sector, I have to make more savings in another. Measures need counter-financing."

Other experts, on the other hand, fundamentally criticize politicians for "clinging" so tightly to the debt ratio. Countries such as Japan or the USA show that prosperity is also possible even with far higher debt levels of well over 100 percent of GDP. Moreover, in times of absolute crisis (pandemic, war, etc.), other recipes are probably necessary to ensure that the state remains able to act with its spending. In the past, there have already been legal problems with this in Germany, for example, and some "trickery". 

Austria's debt brake is "dead law"
Fiscal Council head Christoph Badelt is also not entirely convinced by the idea. "Politicians should remain responsible," says the top budget watchdog. He also points out that Austria already has a debt brake, but this is overridden by an accompanying law for every budget - a typical "Austrian solution"...