COUNCIL OPINION of 18 January 1999 on the stability programme of Austria, 1998-2002 (1999/C 42/04)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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(1) and (2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 18 January the Council examined the Stability Programme of Austria which covers the period 1998-2002. The Council notes with satisfaction that the programme gives detailed information on the expected development of macroeconomic and budgetary aggregates over the programme's horizon. The budgetary targets for 1998 and 1999 are based on the budget plans for these years. For the years beyond 1999, the programme does not, in general, provide information on budgetary measures on a quantitative basis.

The programme envisages a decline in the general government budget deficit to 1,4 % of (Gross Domestic Product) GDP by 2002, while the gross debt ratio is expected to decrease to 60 % of GDP. The Council notes that the programme builds on the significant budgetary consolidation during the years 1995-1997. The Council commends the achievement of significantly better budgetary outcomes than targeted. However, the Council regrets that in 1998, in spite of a propitious growth environment, no further reduction in the government deficit was achieved.

The programme is based upon a macroeconomic forecast showing a deceleration of output growth from the current high rates towards growth slightly below trend by the end of the projection period. The Council considers that this scenario appears realistic but notes that a downside risk exists in the event that the current international financial and economic crisis were to drag on.

The programme assumes that thanks to continued moderate wage increases and falling import prices inflationary pressures will remain low. The Council notes that for the expected combination of growing employment, falling unemployment and continued low inflation to materialise further structural improvements in product and labour markets will be required. Furthermore, the development of competitiveness indicators would have to be closely monitored and structural reforms fostering Austria's competitive position should be continued.

The Council considers it appropriate that the budgetary consolidation envisaged in the programme is achieved by a decrease in the revenue ratio outweighed by a reduction in the expenditure ratio. The Council notes, however, that the overall objective of a reduction in the general government deficit by 0,8 % of GDP, and in the gross debt ratio by 4,4 % of GDP between 1998 and 2002 is very modest.

The Council acknowledges that due to a low variability of output growth in Austria the envisaged medium-term deficit target of 1,4 % of GDP would be sufficient to allow in a normal cyclical downturn the automatic stabilisers to work without risk of breaching the 3 % of GDP reference value. The Council concludes that in this sense, the programme is in line with the provisions of the Stability and Growth Pact.

The Council notes, however, that the budgetary strategy adopted by the Austrian Government appears risk-prone as it does not provide for any additional safety margin. A more ambitious deficit target would have been appropriate to insure against unforeseen developments in economic activity and in public finances, to provide room for manoeuvre for the potential use of discretionary counter-cyclical budgetary policy as well as for the implementation of active policy measures for employment creation and of other structural policies in line with the Employment Guidelines, and to secure a faster decline in the debt ratio in view of the longer-term financial burden arising from population ageing.

The Council, therefore, encourages the Austrian Government to execute the 1999 budget plan as rigorously as possible and ensure that the debt ratio is firmly kept on a downward path. For the years beyond 1999, the Council invites the Austrian Government to do its utmost to overachieve, as in the past, the budgetary targets set in the stability programme, thereby widening the safety margin with a view to minimising the risk of breaching the 3 % of GDP reference value.

The Council welcomes the planned structural reform measures that are outlined in the programme. The general thrust of the reform measures appears appropriate and in keeping with the Council Recommendation of 6 July 1998 on the broad guidelines of the economic policies of the Member States and of the Community (2). The Council urges the Austrian Government to finance reform measures entailing additional government outlays by savings in other areas. The Council encourages the Austrian Government to implement the reforms rapidly and determinedly as this will be a key element in the achievement of the goals set in the stability programme.

(1) OJ L 209, 2.8.1997, p. 1.

(2) OJ L 200, 16.7.1998, p. 34.