 "Indebted Republic | Vienna newspaper")
After the National Council election at the end of September, the Ministry of Finance admitted that our republic was incurring significantly more debt than expected. What factors are responsible for this deficit?
Have you had USA fever over the past few days? Fine.
And now welcome back to the hard ground of Austrian reality – there is a lot to do here, red numbers instead of a white house, so to speak. While federal politics has not even entered into real government negotiations yet – ÖVP and SPÖ Better explore furtherBefore they embark on a structured process – experts put a lot of pressure on things to get moving soon.
Forecast for public finances
On Tuesday, somewhat overshadowed by the overseas vote, the Fiscal Council – the independent body that advises the government on budget and economic policy – presented a new forecast for what will happen to government finances. “Simply Politics” regular readers remember: Six months ago, the Fiscal Council sounded the alarm for the first time that this year’s budget would exceed the EU rule of not incurring more than three percent of gross domestic product in new debt.
The Ministry of Finance under Magnus Brunner (ÖVP) had rejected this at the time, only after the National Council elections at the end of September admitted itthat our republic is incurring significantly more debt than expected. But while the BMF still assumes a deficit of 3.3 percent of GDP, the Fiscal Council sees the situation now as even worse than before the summer – it now assumes a debt of 3.9 percent for 2024 and even 4 for 2025 .1 percent of GDP.
Let’s take a look at how this looks in long-term comparison:
We see: If you leave the two Corona years 2020 and 2021 aside, you have to go back to the global financial crisis at the end of the 2000s to find similarly high debt rates. This is a bit dramatic because so far it has only been acute crisis years in which Austria has violated the EU convergence rules – for example to finance short-time work and other aid, thanks to which the domestic economy has gotten through these phases fairly well.
Huge deficit
Only: Now the crisis is no longer particularly acute – and yet we are still facing a huge deficit. How this comes about is not a big mystery, the Fiscal Council has with its new forecast This helpful breakdown is included:
© Screenshot
This seems a little complicated at first glance, but let’s look at the graphic together: Above, oriented to the right, we see five factors in which public finances have improved compared to the pre-Corona years or with a view to 2025 will still improve: Because employment in Austria is still relatively high, the republic collects more in social security contributions or corporation tax in relation to GDP than on average from 2015 to 2019.
On the other hand – the bars oriented to the left – revenue from mineral oil tax has fallen relatively (because, among other things, people drive less due to high fuel prices; electric cars are also increasingly playing a role). And spending on government investments – for example in new equipment for the armed forces –, for subsidies and especially for pensions are increasing significantly. A good part of the increase in pensions is demographically related, but the exceptionally high pension increases in recent years also play a role.
Above the three percent mark
In other words: A fairly large part of these excessive deficits is not due to the fact that our prosperity is shrinking and that government spending is gaining greater weight in relation to GDP – hopefully only temporarily. No, it is primarily structural, politically decided additional spending that is taking us over the three percent mark.
© Screenshot
The green bars here are the proportion of GDP that the Fiscal Council counts as the “structural” deficit – compared to the small, gray “cyclical” proportion that results from the economic situation.
On this basis the Fiscal Council calculates with a savings requirement of at least 4.4 billion euros in 2025 – as a lower limit, because things could well get worse in the coming months. (As a benchmark: the federal budget this year is around 120 billion euros.) By December, the Fiscal Council wants to make recommendations on where savings could be made.
Naturally, such requirements will hardly make government negotiations any easier – given that at the same time the economy is shrinking and major challenges lie ahead, for example in climate, security and health policy.
Interesting times.
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Genesis
Domestic policy journalist Georg Renner explains the context of Austrian politics once a week in his newsletter. Thorough, understandable and down to the last detail. The newsletter is always published on Thursday, you can subscribe to it here. Renner loves statistics and studies, answering parliamentary questions and lectures at the Council of Ministers, and texts of laws and regulations.
