EUROPEAN COMMISSION Brussels, 23.5.2022 COM(2022) 601 final Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Austria and delivering a Council opinion on the 2022 Stability Programme of Austria {SWD(2022) 601 final} - {SWD(2022) 640 final}



Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Austria and delivering a Council opinion on the 2022 Stability Programme of Austria 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, and in particular Article 5(2) thereof, Having regard to the recommendation of the European Commission, Having regard to the resolutions of the European Parliament, 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)Regulation (EU) 2021/241 of the European Parliament and of the Council, which established the Recovery and Resilience Facility, entered into force on 19 February 2021. The Recovery and Resilience Facility provides financial support for the implementation of reforms and investment, entailing a fiscal impulse financed by the Union. It contributes to the economic recovery and to the implementation of sustainable and growth-enhancing reforms and investment, in particular to promote the green and digital transition, while strengthening the resilience and potential growth of the Member States’ economies. It also helps strengthen sustainable public finances and boost growth and job creation in the medium and long term. The maximum financial contribution per Member State under the Recovery and Resilience Facility [was] updated on [XX] June 2022, in line with Article 11(2) of Regulation (EU) 2021/241. (2)On 24 November 2021, the Commission adopted the Annual Sustainable Growth Survey, marking the start of the 2022 European Semester for economic policy coordination. It took due account of the reaffirmed joint commitment of the Porto Social Summit of May 2021 to further implement the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The European Council endorsed the priorities of the 2022 Annual Sustainable Growth Survey on 25 March 2022. On 24 November 2021, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Austria as one of the Member States for which an in-depth review would be needed. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was adopted on 5 April 2022 by the Council, as well as the proposal for the 2022 Joint Employment Report analysing the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights, which was adopted by the Council on 14 March 2022. (3)Russia’s invasion of Ukraine, in the wake of the global pandemic, has significantly altered the geopolitical and economic context. The impact of the invasion on Member States’ economies has been felt, for example, through higher energy and food prices, the inflow of refugees from Ukraine and weaker growth prospects. The higher energy prices weigh particularly on the most vulnerable households experiencing or at risk of energy poverty. The EU is also seeing an unprecedented inflow of people fleeing Ukraine. In this context, on 4 March 2022, the Temporary Protection Directive was triggered for the first time, granting displaced persons from Ukraine the right to legally stay in the EU, as well as access to education and training, labour market, healthcare, housing and social welfare. Exceptional support is made available to Austria under the Cohesion’s Action for Refugees in Europe (CARE) initiative and through additional pre-financing under the Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU) programme to urgently address reception and integration needs for those fleeing Ukraine. (4)Taking account of the rapidly changing economic and geopolitical situation the European Semester resumes its broad economic and employment policy coordination in 2022, while evolving in line with the implementation requirements of the Recovery and Resilience Facility, as outlined in the 2022 Annual Sustainable Growth Survey. The implementation of the adopted recovery and resilience plans is essential for the delivery of the policy priorities under the European Semester, as the plans address all or a significant subset of the relevant country-specific recommendations issued in the 2019 and 2020 country-specific Semester cycles. The 2019 and 2020 country-specific recommendations remain equally relevant also for recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241, in addition to any country-specific recommendations issued up to the date of submission of the modified plan. (5)The General Escape Clause has been active since March 2020. In its Communication of 3 March 2021, the Commission set out its view that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy, with the level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) as a key quantitative criterion.so that

(6)Following the approach in the Council opinion of 18 June 2021 on the 2021 Stability Programme, the fiscal stance is currently best measured as the change in primary expenditure (net of discretionary revenue measures), excluding COVID-19 crisis-related temporary emergency measures but including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other EU funds, relative to medium-term potential growth. Going beyond the overall fiscal stance, in order to assess whether national fiscal policy is prudent and its composition is conducive to a sustainable recovery consistent with the green and digital transitions, attention is also paid to the evolution of nationally-financed primary current expenditure (net of discretionary revenue measures and excluding COVID-19 crisis-related temporary emergency measures) and investment. (7)On 2 March 2022, the Commission adopted a Communication providing broad guidance for fiscal policy in 2023, aiming at supporting the preparation of Member States’ Stability and Convergence Programmes and thereby strengthening policy coordination. The Commission noted that, based on the macroeconomic outlook of the 2022 winter forecast, transitioning from an aggregate supportive fiscal stance in 2020-2022 to a broadly neutral aggregate fiscal stance would appear appropriate in 2023, while standing ready to react to the evolving economic situation. The Commission announced that the fiscal recommendations for 2023 should continue to differentiate across Member States and take into account possible cross-country spillovers. The Commission invited the Member States to reflect the guidance in their Stability and Convergence Programmes. The Commission committed to closely monitor the economic developments and adjust its policy guidance as needed and at the latest in its Semester spring package of late May 2022. (8)With respect to the fiscal guidance provided on 2 March 2022, the fiscal recommendations for 2023 take into account the worsened economic outlook, the heightened uncertainty and further downside risks, and the higher inflation compared to the winter forecast. Against these considerations, the fiscal response has to expand public investment for the green and digital transition and energy security, and sustain the purchasing power of the most vulnerable households so as to cushion the impact of the energy price hike and help limit inflationary pressures from second round effects via targeted and temporary measures; fiscal policy has to remain agile so as to adjust to the rapidly evolving circumstances, and be differentiated across countries depending on their fiscal and economic situation, including as regards the exposure to the crisis and the inflow of displaced persons from Ukraine. (9)On 30 April 2021, Austria submitted its national recovery and resilience plan to the Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant to Article 19 of Regulation (EU) 2021/241, the Commission assessed the relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, in accordance with the assessment guidelines of Annex V to that Regulation. On 13 July 2021, the Council adopted its Decision on the approval of the assessment of the recovery and resilience plan for Austria. The release of instalments is conditional on a decision by the Commission, taken in accordance with Article 24(5) of Regulation (EU) 2021/241, that Austria has satisfactorily fulfilled the relevant milestones and targets set out in the Council Implementing Decision. Satisfactory fulfilment presupposes that the achievement of preceding milestones and targets has not been reversed. (10)On 27 April 2022, Austria submitted its 2022 National Reform Programme and its 2022 Stability Programme. To take account of their interlinkages, the two programmes have been assessed together. In accordance with Article 27 of Regulation (EU) 2021/241, the 2022 National Reform Programme also reflects Austria’s bi-annual reporting on the progress made in achieving its recovery and resilience plan. (11)The Commission published the 2022 country report for Austria on 23 May 2022. It assessed Austria’s progress in addressing the relevant country-specific recommendations adopted by the Council in 2019, 2020 and 2021, and took stock of Austria’s implementation of the recovery and resilience plan, building on the Recovery and Resilience Scoreboard. Based on this analysis, the country report identified gaps with respect to those challenges that are not addressed or only partially by the recovery and resilience plan, as well as new and emerging challenges, including those emerging from Russia’s invasion of Ukraine. It also assessed Austria’s progress on implementing the European Pillar of Social Rights and on achieving the EU headline targets on employment, skills and poverty reduction, as well as progress in achieving the UN’s Sustainable Development Goals. (12)On 27 April 2022, Austria submitted its 2022 Stability Programme, in line with the deadline established in Article 4 of Regulation (EC) No 1466/97. (13)On 23 May 2022, the Commission issued a report under Article 126(3) TFEU. This report discussed the budgetary situation of Austria, as its general government deficit in 2021 exceeded the 3% of GDP Treaty reference value. The report concluded that the deficit criterion was not fulfilled. In line with the Communication of 2 March 2022, the Commission did not propose to open new excessive deficit procedures in spring 2022 and it will re-assess the possible opening of excessive deficit procedures in autumn 2022. (14)On 20 July 2020, the Council recommended Austria to take in 2020 and 2021 all necessary measures, in line with the general escape clause, to effectively address the pandemic, sustain the economy and support the ensuing recovery. It also recommended Austria to pursue, when economic conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. In 2021, based on data validated by Eurostat, Austria’s general government deficit fell from 8.0% of GDP in 2020 to 5.9% in 2021. The fiscal policy response by Austria supported the economic recovery in 2021, while temporary emergency support measures declined from 4.8% of GDP in 2020 to 4.3% in 2021. The measures taken by Austria in 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 were mostly temporary or matched by offsetting measures. At the same time, some of the discretionary measures adopted by the government over the period 2020 to 2021 were not temporary or matched by offsetting measures, mainly consisting of a significant tax relief provided to households and corporations through the so called eco-social tax reform. Based on data validated by Eurostat, general government debt stood at 82.8% of GDP in 2021. (15)The macroeconomic scenario underpinning the budgetary projections in the 2022 Stability Programme is realistic. The government projects real GDP to grow by 3.9% in 2022 and 2.0% in 2023. By comparison, the Commission’s 2022 spring forecast projects a real GDP growth of 3.9% in 2022 and 1.9% in 2023. In its 2022 Stability Programme, the Government expects that the headline deficit will decrease to 3.1% of GDP in 2022 and to 1.5% in 2023. The decrease in 2022, mainly reflects the strong growth in economic activity and the unwinding of most emergency measures. In the absence of other measures, such as those related to elevated energy prices, the deficit would have decreased even further. According to the Programme, the general government debt-to-GDP ratio is expected to decrease to 80.0% in 2022, and to decline to 77.1% in 2023. Based on policy measures known at the cut-off date of the forecast, the Commission 2022 spring forecast projects a government deficit for 2022 and 2023 of 3.1% of GDP and 1.5% respectively. This is in line with the deficit projected in the 2022 Stability Programme. The Commission 2022 spring forecast projects a similar general government debt-to-GDP ratio, of 80.0% in 2022 and 77.5% in 2023. Based on the Commission spring 2022 forecast, the medium-term (10-year average) potential output growth is estimated at 1.2%. However, this estimate does not include the impact of the reforms that are part of the Recovery and Resilience Plan and can boost Austria’s potential growth. (16)In 2022, the government phased out the majority of measures taken in response to the COVID-19 crisis, such that the temporary emergency support measures are projected to decline from 4.3% of GDP in 2021 to 1.1% in 2022. The government deficit is impacted by the measures adopted to counter the economic and social impact of the increase in energy prices, which in the Commission spring 2022 forecast are estimated at 0.4% of GDP in 2022 and 0.2% of GDP in 2023. These measures mainly consist of social transfers to poorer households, cuts to indirect taxes on energy consumption, and temporary relief measures for commuters in the context of personal income taxes. These measures have been announced as temporary. However, in case energy prices remain elevated also in 2023, some of these measures could be continued. The government deficit is also impacted by the costs to offer temporary protection to displaced persons from Ukraine, which in the Commission 2022 spring forecast are projected at 0.3% of GDP in 2022 and 0.4% in 2023. (17)On 18 June 2021, the Council recommended that in 2022 Austria maintain a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserves nationally-financed investment. It also recommended Austria to pursue, when economic conditions allow, a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability in the medium term, and at the same time, to enhance investment to boost growth potential. (18)In 2022, based on the Commission’s 2022 spring forecast and including the information incorporated in Austria’s 2022 Stability Programme, the fiscal stance is projected to be supportive at -1.2% of GDP as recommended by the Council. Austria plans to provide continued support to the recovery by making use of the Recovery and Resilience Facility to finance additional investment as recommended by the Council. The positive contribution to economic activity of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to increase by 0.1 percentage point of GDP in 2022 compared to 2021. Nationally-financed investment is projected to provide an expansionary contribution to the fiscal stance of 0.3 percentage points in 2022. Therefore, Austria plans to preserve nationally financed investment, as recommended by the Council. At the same time, the growth in nationally-financed primary current expenditure (net of new revenue measures) in 2022 is projected to provide an expansionary contribution of 0.5 percentage points to the overall fiscal stance. This includes the additional impact of the measures to address the economic and social impact of the increase in energy prices (0.4% of GDP) as well as the costs to offer temporary protection to displaced persons from Ukraine (0.3% of GDP). (19)In 2023, the fiscal stance is projected in the Commission 2022 spring forecast at 0.4%% of GDP on a no-policy change assumption. Austria is projected to continue using the grants from the Recovery and Resilience Facility in 2023 to finance additional investment in support of the recovery. The positive contribution to economic activity of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to remain stable compared to 2022. Nationally-financed investment is projected to provide a contractionary contribution to the fiscal stance of 0.4 percentage points in 2023. At the same time, the growth in nationally-financed primary current expenditure (net of new revenue measures) in 2023 is projected to provide a broadly neutral contribution of 0.0 percentage point to the overall fiscal stance. This includes the impact from the phasing out of the measures addressing the increased energy prices (0.2 % of GDP) and additional costs to offer temporary protection to displaced persons from Ukraine (0.1% of GDP). (20)In the 2022 Stability Programme, the general government deficit is expected to gradually decline to 0.7% of GDP in 2024 and to 0.3% by 2025. Therefore, the general government deficit is planned to remain below 3% of GDP from 2023 onwards until the end of the Programme period. These projections assume a decrease in public expenditures for this time horizon (from 50.4% of GDP in 2023 to 49.6% in 2024 and 49.4% in 2025). According to the Programme, the general government debt-to-GDP ratio is expected to decrease by 2025, specifically with a decrease to 74.5% in 2024, and a decline to 72.1% in 2025. Based on the Commission’s analysis, debt sustainability risks appear medium over the medium term. (21)Austria faces medium risks to fiscal sustainability in the medium and long term, which are mainly due to budgetary pressures stemming from population ageing. The ratio of older adults dependent on the working-age population is expected to increase from two pensioners to roughly three pensioners per worker in the next 50 years. Overall, according to the Ageing Working Group risk scenario of the Ageing Report, public expenditure for long-term care is expected to soar by up to 30% in the next eight years. In addition to demographic developments, the need for more intensive care due to old-age-related illnesses is also expected to play a role in pushing up the costs of long-term care. A comprehensive reform of the long-term care system was announced but is still pending. So far, a dedicated task force has summarised the main takeaways from a public consultation. According to the task force’s report, one priority of the reform will be to set up a coordinated control of the system. This includes a clear assignment of responsibilities across levels of government and transparency about the origin and use of funds. (22)Austria’s fiscal federalism is characterised by a significant mismatch of expenditure and revenue-raising responsibilities at the subnational level. Rather than relying on tax autonomy, subnational budgets are fed by a complex system of tax sharing and intergovernmental transfers. This hampers fiscal transparency and political accountability, and provides few incentives for efficient public spending. As the need for reform persists, it should be addressed in the negotiations for the next Intergovernmental Fiscal Relations Act, which are expected to start in December 2022. Besides reforming the national fiscal framework, making better use of spending reviews can improve the effectiveness and efficiency of public expenditures as these help scrutinise financial allocations against political priorities. (23)Austria’s tax system continues to have scope to improve fairness and growth-friendliness. The tax system is characterised by a high burden on labour stemming from payroll taxes and social security contributions, with social-security contributions being borne both by employees and employers. This hinders job creation. At the same time, high marginal tax rates act as a disincentive for people to work especially at the lower end of the income distribution and for second earners in a family. The recently adopted eco-social tax reform is a step in the right direction and the introduction of a CO2 price for non-ETS sectors is an important project within Austria’s recovery and resilience plan. Nevertheless, structural challenges persist. There is scope to further reduce non-wage labour costs to boost job creation and labour supply, especially for low-income earners. Making better use of more growth friendly taxes could help create the necessary budgetary space and improve the fairness of the tax system. (24)In accordance with Article 19(3), point (b), and Annex V, criterion 2.2, to Regulation (EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. These help address all or a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to Austria by the Council in the European Semester in 2019 and 2020, in addition to any country-specific recommendations issued up to the date of adoption of a plan. In particular, the measures in the plan contribute to addressing a significant subset of the country-specific recommendations identified in recent years in the context of the European Semester. Planned changes to the tax system will help reduce greenhouse gas emissions, while also contributing to shifting taxes away from labour while taking account of ecological and social aspects. The labour market participation of women may benefit from the improved availability of quality early childcare facilities. The long-recognised challenge related to the gender pension gap is also partially addressed. The green transition will be promoted by investment in (i) energy efficiency, (ii) renewables, (iii) the decarbonisation of industry, (iv) biodiversity and (v) circular economy, accompanied by related reforms, including the overhaul of the support framework for renewables and the phase-out of oil heating systems. The plan will also help substantially increase the digital capacity of enterprises. The administrative burden for businesses will be lowered by means of digital ‘single access’ points.