# EUR-Lex - 52014DC0421 - EN

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# 52014DC0421

**Recommendation for a COUNCIL RECOMMENDATION on Austria’s 2014 national reform programme and delivering a Council opinion on Austria’s 2014 stability programme /* COM/2014/0421 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Austria’s 2014 national reform
programme
and delivering a Council opinion on Austria’s 2014 stability programme

THE COUNCIL OF
THE EUROPEAN UNION,

Having regard to the
Treaty on the Functioning of the European Union, and in particular Articles
121(2) and 148(4) thereof,

Having regard to
Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the
surveillance of budgetary positions and the surveillance and coordination of
economic policies[1],
and in particular Article 5(2) thereof,

Having regard to the
recommendation of the European Commission[2],

Having regard to the
resolutions of the European Parliament[3],

Having regard to the
conclusions of the European Council,

Having regard to the
opinion of the Employment Committee,

Having regard to the
opinion of the Economic and Financial Committee,

Having regard to the opinion of the Social
Protection Committee,

Having regard to the opinion of the
Economic Policy Committee,

Whereas:

(1) 
On 26 March 2010, the
European Council agreed to the Commission’s proposal to launch a new strategy
for growth and jobs, Europe 2020, based on enhanced coordination of economic
policies, which will focus on the key areas where action is needed to boost
Europe’s potential for sustainable growth and competitiveness.

(2) 
On 13 July 2010, the
Council, on the basis of the Commission's proposals, adopted a recommendation
on the broad guidelines for the economic policies of the Member States and the
Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines
for the employment policies of the Member States, which together form the
‘integrated guidelines’. Member States were invited to take the integrated
guidelines into account in their national economic and employment policies.

(3) 
On 29 June 2012, the Heads
of State or Government decided on a Compact for Growth and Jobs, providing a
coherent framework for action at national, EU and euro area levels using all
possible levers, instruments and policies. They decided on action to be taken
at the level of the Member States, in particular expressing full commitment to
achieving the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.

(4) 
On 9 July 2013, the Council
adopted a recommendation on Austria’s national reform programme for 2013 and
delivered its opinion on Austria’s updated stability programme for 2012-2017. On
15 November 2013, in line with Regulation
(EU) No 473/2013[4],
the Commission presented its
opinion on Austria's draft budgetary plan for 2014[5].

(5) 
On 13 November 2013, the
Commission adopted the Annual Growth Survey[6], marking the start of the 2014
European Semester of economic policy coordination. On the same day on the basis
of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism
Report[7],
in which it did not identify Austria as one of the Member States for which an
in-depth review would be carried out.

(6) 
On 20 December 2013, the
European Council endorsed the priorities for ensuring financial stability, fiscal
consolidation and action to foster growth. It underscored the need to pursue
differentiated, growth-friendly fiscal consolidation, to restore normal lending
conditions to the economy, to promote growth and competitiveness, to tackle
unemployment and the social consequences of the crisis, and to modernise public
administration.

(7) 
On 8 April 2014, Austria
submitted its 2014 national reform programme and on 29 April 2014 its 2014
stability programme. In order to take account of their interlinkages, the two
programmes have been assessed at the same time.

(8) 
The objective of the budgetary strategy outlined
in the 2014 Stability Programme is to meet the medium-term objective of a
structural deficit of no more than 0.45% of GDP by 2016, which reflects the
requirements of the Stability and Growth Pact. The general government deficit
has been sustainably brought below 3% of GDP in 2013. The (recalculated)
structural balance is planned to remain constant in 2014 and to improve by 0.3
pp. of GDP in 2015, falling significantly short of the required adjustment in
both years. Expenditure growth will also deviate significantly from the
expenditure benchmark both in 2014 and 2015. On 12 May 2014, Austria announced
a set of additional revenue and expenditure measures. Provided that these
measures are strictly and timely implemented, Austria's budgetary strategy does
no longer imply a planned significant deviation from the adjustment path
towards the medium-term objective in 2014. At the same time, the planned
adjustment path towards the medium-term objective still presents risks with
respect to compliance with the requirements of the Stability and Growth Pact. According
to the stability programme, general government gross debt will significantly
increase from close to 74.5% of GDP in 2013 to 79% of GDP in 2014, due to the
impact of the establishment of a Liquidation Entity for the assets of Hypo Alpe
Adria, while the debt will start decreasing from 2015 onwards. The
macroeconomic scenario underpinning the budgetary projections in the programme
is plausible and was prepared by an independent body, the Austrian Institute of
Economic Research (WIFO). The Commission 2014 spring forecast expects that the
deficit will remain below 3% in 2014 and 2015. However, it projects a
deterioration of the structural balance in 2014 and an improvement by only 0.1%
of GDP in 2015. Based on its assessment of the programme and the Commission forecast
as well as its assessment of the additional measures announced on 12 May,
pursuant to Council Regulation (EC) No 1466/97, the Council is of the opinion
that Austria has sustainably corrected its excessive deficit, but that a risk
of significant deviation from the adjustment path towards the medium-term
objective in 2014 and 2015 remains.

(9) 
In line with the Treaty on Stability
Coordination and Governance, Austria has strengthened its fiscal framework in
2012 through a reform of the Austrian Internal Stability Pact. The mandate of
the Austrian Fiscal Council was expanded as from November 2013 in response to
the requirements of the Fiscal Compact. The need for a thorough reform of the relations of different levels of government to
better streamline their respective responsibilities, remains, however, as
recognised in the coalition agreement.

(10) 
Medium and long-term pension
and health care expenditures and to a lesser degree those for long-term care
pose a risk to the sustainability of public finances. In 2014, some measures to
limit access to early retirement schemes and to increase incentives for staying
longer in employment have entered into force. Still, the effective retirement
age of 58.4 years in 2012 is well
below the EU-average. It remains
considerably below the statutory retirement age (5.6 years for men and 2.6 years for women in 2012). The National Reform Programme contains
relatively ambitious short-term targets to raise the effective retirement age
by 1.6 years between 2012 and 2018, and their implementation will have to be
closely monitored. The recent reforms to the pension system are likely to
reduce the sustainability risks to some degree, if accompanied by improvements
in labour market conditions that allow older workers to stay longer in
employment. There are however no
plans to introduce measures with a more structural and long-term effect, such as accelerating the harmonisation of the statutory
retirement age for men and women and linking the statutory retirement age with
life expectancy, which would additionally contribute to longer working lives
and the financial sustainability of the pension system.

(11) 
Efficient allocation of
resources in the Austrian health system is hampered by a complex governance
structure and a relatively strong focus on the large and costly hospital
sector. Some measures have been taken to implement health care reform and to
increase the cost-effectiveness of public spending. However, they may not be
sufficient to address structural weaknesses in the sector and there remains a
need to set more ambitious targets for shifting from inpatient to outpatient
care and to reinforce preventive health care, for which public spending is
below EU average. The measures announced to strengthen primary care provision
and to develop integrated care programmes for chronic diseases are welcomed.
The long-term care fund, which was extended to 2016 with an additional EUR 650
million and is planned to be further extended to 2018 with extra EUR 700
million, provides an interim solution for the financing of care services. The
financial sustainability of long-term care will require attention also beyond this timeline.

(12) 
Austria's tax system
continues to be characterised by a high tax and social security burden on
labour, in particular for low-income earners. Labour taxes account for 24.7% of
GDP in 2012, one of the highest in the EU. Social security contributions and
payroll taxes amount to almost 50 percent of gross wages. High social
contributions and entry income taxes are likely to lower incentives to work for
individuals with low earnings potential and for second earners. The recently
adopted tax package includes limited measures to reduce the tax burden on
labour but does not exploit the potential for a tax shift towards taxes less
detrimental to growth, such as recurrent taxes on immovable property, where
estimates of taxable values are outdated.

(13) 
The Austrian labour market
continues to perform well with one of the lowest unemployment rates in the EU
(2013: 4.9%). However, the future challenges resulting from population ageing
and a potentially shrinking work force call for a better use of the underutilised
labour market potential of older workers, women and migrants. The employment
rate of older workers remains below the EU average (44.9 % v. 50.3 %), although
their participation rate has increased substantially since 2000, by almost 15
percentage points to 44.9% in 2013. Measures to curb early retirement are
becoming effective in 2014 and further measures to strengthen incentives for
exiting the labour market later are in preparation. Nevertheless, difficulties
for older workers to stay in or re-enter employment remain. Migrants continue
to face obstacles to full integration in the labour market and significantly
higher unemployment rates, partly due to remaining barriers to the recognition
of their qualifications, while they constitute an increasing part of the labour
force. While the female employment
rate of 70.8% in 2013 is relatively high, it is far less favourable in
full-time equivalents (55.6% in 2012). Austria has one of the highest percentages
of women in part-time employment and a high concentration of women in low-pay
employment. As a consequence, the gender pay and pension gap is one of the
highest in the EU. Although some measures have been taken to improve child care
and long-term care services, availability is still limited.

(14) 
Austria has improved educational outcomes in all
categories as measured by the OECD's
2012 students' skills survey, but reading achievements
remain still below the EU average and the socio-economic background continues
to have significant influence on educational achievements. While overall the
early school leaving target has been met, the rate for pupils with a migrant
background, who constitute a growing number of pupils, was more than three
times higher than for those of non-migrant background (21.5 % vs. 6.0 % in
2012). Insufficient emphasis is put on prevention of early school leaving and a
nationwide strategic approach for high-quality early childhood education still
needs to be developed. Some reforms to various aspects of the school system, in
particular the roll-out of the New Middle School programme, are on-going or
have just been adopted. The potential of New Middle School to mitigate the
negative effects of early assignment of pupils to different school types after
four years of elementary school ('early tracking') for socially
disadvantaged and to improve learning outcomes has to be monitored closely. In higher education, increasing numbers of enrolled students put
pressure on finances and organisation, while the percentage of students
completing their programmes remains below EU-average. Improving educational
outcomes remain highly important in order to facilitate the pathway from
education to employment.

(15) 
There are still significant
regulatory barriers which hamper companies and individual professionals in offering
their services in Austria. Legislation regulating specific professions limits
company forms and imposes shareholding requirements, while at the same time
access to individual professions is subject to specific professional
qualifications and the establishment of interdisciplinary service companies
remains difficult. The combination of these requirements creates barriers to
entering the market and exercising professional services which limits
competition. With respect to professional qualification requirements, Austria
is participating in the EU-wide mutual evaluation exercise and has updated its
database of regulated professions as a first step to assessing the
justification and proportionality of professional qualification requirements.

(16) 
Publication requirements in EU procurement
legislation aim at ensuring competition and equal-treatment through better
information about contract opportunity, which is a key condition for market
access. A higher degree of competition among bidders generally results in more favourable
offerings for procuring entities including substantial cutting of prices. However,
the value of calls for tenders published by Austrian
authorities and entities under EU procurement legislation was 1.5% of GDP and
6.6% of total public expenditure on works, goods and services in 2012, well
below the EU averages of 3.4% and 17.7%, respectively. This situation creates
considerable costs for the Austrian taxpayer and for businesses in terms of business
opportunities foregone.

(17) 
Despite increases in the
budget of the Austrian Federal
Competition Authority, it remains significantly understaffed in comparison to the
authorities of other Member States of a similar or smaller size. The Austrian
freight and passenger railway markets would benefit from further efforts to
foster competition, as recommended by the Council in 2013.

(18) 
While overall banking sector
capitalisation continued to improve in 2013, further efforts to strengthen
capital buffers appear warranted considering the risk profile of banks. The
Council recommended in 2013 that Austria speed up the restructuring of
nationalised and partly nationalised banks. Currently, the legal framework for
the wind-down of Hypo Alpe Adria is to be presented for adoption by parliament
by summer. The organisational preparation of setting up the respective asset
management company (AMC) is in progress. The AMC is expected to become
operational in autumn. Österreichische Volksbanken AG and the bad bank of
Kommunalkredit, KA Finanz, continue their restructuring or their wind down,
respectively, in line with EU state aid decisions. Transparent and decisive
steps to complete the restructuring of nationalised banks would be essential to
safeguard financial stability and to minimise the negative effects on public
finances.

(19) 
In the context of the
European Semester, the Commission has carried out a comprehensive analysis of
Austria’s economic policy. It has assessed the stability programme and the
national reform programme. It has taken into account not only their relevance
for sustainable fiscal and socio-economic policy in Austria but also their
compliance with EU rules and guidance, given the need to reinforce the overall
economic governance of the European Union by providing EU-level input into
future national decisions. Its recommendations under the
European Semester are reflected in recommendations (1) to (5) below.

(20) 
In the light of this
assessment, the Council has examined Austria’s stability programme, and its
opinion[8]
is reflected in particular in recommendation (1) below.

(21) 
In the context of the
European Semester the Commission has also carried out an analysis of the
economic policy of the euro area as a whole. On the basis of this analysis, the
Council has issued specific recommendations for the Member States whose
currency is the euro. Austria should also ensure the full and timely
implementation of these recommendations.

HEREBY
RECOMMENDS that Austria take action within the period 2014-2015 to:

1. 
Following the correction of the excessive
deficit, reinforce the budgetary measures for 2014 in the light of the emerging
gap of 0.5% of GDP based on the Commission 2014
spring forecast, pointing to a risk of significant deviation relative to
the Stability and Growth Pact requirements. In 2015, significantly strengthen
the budgetary strategy to ensure reaching the medium-term objective and remain
at it thereafter, and ensure that the debt rule is met in order to keep the
general government debt ratio on a sustained downward path. Further streamline
fiscal relations between layers of government, for example by simplifying the
organisational setting and aligning spending and funding responsibilities.

2. 
Improve the long-term
sustainability of the pension system, notably by bringing forward the
harmonisation of the statutory retirement age for men and women and by linking
the statutory retirement age to life expectancy. Monitor the implementation of
recent reforms restricting access to early retirement. Further improve the cost
effectiveness and sustainability of health care and long-term care services.

3. 
Reduce the high tax wedge on
labour for low-income earners by shifting taxation to sources less detrimental
to growth, such as recurrent taxes on immovable property, including by updating
the tax base. Reinforce measures to improve labour market prospects of people
with a migrant background, women and older workers. This includes further
improving child- and long-term care services and the recognition of migrants'
qualifications. Improve educational outcomes in particular of young
people with a migrant background, by enhancing early childhood education and
reducing the negative effects of early tracking. Further improve strategic
planning in higher education and enhance measures to reduce dropouts.

4. 
Remove excessive barriers for services providers,
including as regards legal form and shareholding requirements and with respect
to setting up interdisciplinary services companies. Review whether restrictions
on entry into and conduct in regulated professions are proportionate and
justified by general interest. Identify the reasons behind the low value of
public contracts open to procurement under EU legislation. Substantially
strengthen the resources of the Federal Competition Authority.

5.           Continue to closely oversee and
advance effectively the orderly restructuring of the nationalised and partly
nationalised banks.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               COM(2014) 421 final.

[3]               P7_TA(2014)0128 and
P7_TA(2014)0129.

[4]               OJ L 140, 27.5.2013, p.11.

[5]               C(2013) 8009 final

[6]               COM(2013) 800 final.

[7]               COM(2013) 790 final.

[8]               Under Article 5(2) of Council Regulation (EC) No
1466/97.