Council Opinion

of 12 February 2001

on the updated stability programme of Austria, 2000-2004

(2001/C 77/06)

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(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 12 February 2001 the Council examined the updated stability programme for Austria which covers the period 2000-2004.

The updated programme envisages a decline in the general government budget deficit from 1,4 % of GDP in 2000 to a balanced position in 2002 and the following years. The government gross debt is expected to decrease from 61,1 % of GDP to below the 60 % reference value in 2002 and further to 55,3 % in 2004. The Council notes with satisfaction that, in compliance with its recommendation on the previous update of the programme(2), the current programme envisages a much faster reduction of the government deficit. Moreover, the Council acknowledges that the budgetary goals are to be achieved without resorting to the one-off measures included in the previous update.

The Council notes that, in spite of higher-than-projected growth, the estimated deficit for 2000 in the current update is not lower than projected in the previous programme once originally unbudgeted universal mobile telecommunications system (UMTS) proceeds are excluded. The Council recommended in its opinion on the previous update and in the recommendations of the June 2000 broad economic policy guidelines (BEPG) that, in the event of higher growth, a better deficit outcome should be achieved. The available data do not allow at present a conclusive appraisal of the implementation of the budget in 2000. If, however, the outcome for the general government deficit were not lower than the objective of 1,7 % of GDP, Austria would not have fully complied with last year's Council opinion and the BEPG recommendations.

The deficit projections of the programme are based on a macroeconomic scenario expecting output growth to decline from its cyclical peak of 3,5 % in 2000 to 2,3 % in 2003 and resume to 2,5 % in 2004, amounting to an annual average growth of 2,6 % over the forecast period.

The Council considers that the expected growth is feasible in view of the presently good supply and demand conditions for the Austrian economy.

The underlying budgetary position implicit in the deficit goals is in line with the requirements of the stability and growth pact from 2001 onwards, i.e. they provide Austrian Government finances with a large enough safety margin to withstand a normal cyclical downturn without breaching the 3 % of GDP reference value for the deficit. The Council notes with satisfaction that, in accordance with its recommendations, the stability and growth pact is now respected earlier, which is appropriate in view of the currently favourable economic conditions.

However, the Council notes that in the initial years of the programme the deficit reduction relies heavily on revenue side measures. As a consequence, the already high tax burden in Austria rises further in 2001, thereby more than offsetting the effects of the income tax reform 2000. The Council, therefore, invites the Austrian Government to consider measures which permit a significant decline in the tax burden, especially on labour, while preserving the budgetary adjustment path.

The Council considers that, to achieve a balanced budget by 2002, a strict budgetary implementation at all levels of government is crucial. This seems essential in view of uncertainties regarding the savings estimates of the public administration and pension reforms. At the level of the Bundesländer the expenditure cuts necessary to achieve the surpluses required by the national stability pact largely remain to be defined.

The Council acknowledges that, by 2003, more than half of the total envisaged consolidation originates from expenditure savings. This requires that achievements in budgetary consolidation are locked in and budgetary discipline is maintained in the years 2003 and beyond. Any additional spending or further revenue reductions, including those envisaged in the programme, should be made strictly contingent on compensatory expenditure cuts. In light of the medium- and longer-term challenges to public finances, due not least to population ageing, and the need to render government finances more conducive to investment and growth the Council considers that fiscal adjustment needs to be continued with determination.

The Council acknowledges ongoing structural reforms of the Austrian economy in line with the broad economic policy guidelines. The recent reform of early retirement is particularly welcome. However, the Council encourages the Austrian Government to continue its reform efforts in order to better achieve and safeguard sustainable government finances in the medium and longer term, namely in the pension system and the health care sector. The Council invites the authorities to provide more information on this issue in the next update of the programme. The Council also encourages the Austrian Government to continue determinedly with the reforms of product and capital markets, with a view to enhancing competition, fostering the provision of risk capital and improving entrepreneurial dynamism and corporate governance.

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

(2) OJ C 162, 10.6.2000, p. 1.