Council Opinion

of 22 January 2002

on the updated stability programme for Austria, 2001-2005

(2002/C 33/05)

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 22 January 2002 the Council examined the updated stability programme for Austria which covers the period 2001-2005.

The updated programme projects general government finances to improve from a deficit of 1,1 % of GDP in 2000 to a balanced position in 2001-2003, and to move to a small surplus in the following years. The government gross debt is expected to decrease from 61,8 % of GDP to slightly below the 60 % reference value in 2002 and further to 52,1 % in 2005. The Council notes with satisfaction that, in spite of lower-than-projected growth, the government deficit was reduced more rapidly than projected, i.e. one year ahead of the schedule presented in the previous programme.

The Council welcomes that important structural savings measures, notably in the fields of pensions and public administration, were realised in 2001; they contributed to bring down the government accounts to balance in 2001 and will continue to impact positively on spending over the programme period. This is in line with the Council's recommendations in the "Broad economic policy guidelines". The Council notes, however, that the deficit reduction in 2001 relied heavily on revenue side measures. As a consequence, the already high tax burden in Austria has risen more strongly than anticipated, thereby more than offsetting the effects of the 2000 income tax reform.

The budgetary projections of the programme are based on a macroeconomic scenario expecting annual output growth to resume from its cyclical trough of 1,3 % in 2001 and 2002 to 2,4 % in 2003 and to increase further to 2,8 % in the following years, amounting to an annual average growth of 2,25 % over the forecast period. The Council considers that the expected growth is feasible given that no significant macroeconomic imbalances prevail and provided that social partners continue their policy of setting wages in line with maintaining international competitiveness.

The projected medium-term budgetary position of close to balance or in surplus from 2001 onwards is in line with the requirements of the stabiltiy and growth pact. Also in cyclically adjusted terms these projections indicate that government finances in Austris should be able to withstand a normal cyclical downturn without breaching the 3 % of GDP reference value for the deficit ratio.

The Council urges the Austrian authorities to ensure strict budgetary implementation at all levels of government. This is crucial to preserve budgetary balance, in particular in view of uncertainties regarding the impact of the economic slowdown. Moreover, at the level of the Bundesländer expenditure cuts are necessary to achieve the sustainable structural surpluses required by the national stability pact.

The Council considers that attaining a budgetary surplus in 2004-2005, as projected in the programme, is appropriate for Austria. A budgetary surplus in the medium term is central in bringing down the debt level decisively, which appears necessary in view of the long-term expenditure pressures resulting from population ageing.

The Council notes that the government finance projections rely on a revenue-to-GDP ratio which is clearly higher than that of most other Member States. Therefore, the Council encourages the Austrian authorities to consider a stronger than planned reduction in the revenue ratio, accompanied by an equivalent reduction in the expenditure ratio. A decisive decline in the tax burden, especially on labour, would be instrumental in rendering government finances more conducive to employment and output growth. In the short-term, the Council invites the Austrian Government to implement the reduction in non-wage labour cost, already postponed by one year, as planned in 2003.

The Council furthermore considers that the Austrian Government should continue the ongoing structural reforms and enhance its efforts in the pension system and the health care sector, as recommended in the broad economic policy guidelines. In particular, the Council invites the Austrian Government to consider measures with a view to further raising the low effective retirement age and to encouraging labour market participation, in particular of older workers and women. The Council also encourages the Austrian Government to continue with the reforms of product, labour and capital markets, with a view to enhancing competition, fostering the provision of risk capital and improving entrepreneurial dynamism.

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