Council opinion of 13 May 2003 on the updated Stability Programme for Austria, 2003 to 2007
Date: 2003-05-13
Institutions: Council of the European Union
Subjects: Austria, Economic and Monetary Union, economic policy, gross domestic product, stability programme

24.5.2003

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Official Journal of the European Union

C 123/1

I

(Information)

COUNCIL

COUNCIL OPINION

of 13 May 2003

on the updated Stability Programme for Austria, 2003 to 2007

(2003/C 123/01)

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:

the

On 13 May 2003 the Council examined the updated stability
programme for Austria which covers the period 2003 to 2007.
The Council notes that the submission was late as compared to
the date required in the revised ‘code of conduct on the content
stability and converge programmes’, and
and format of
update
therefore
the
only
the code. The new Austrian government,
requirements of
which was sworn in on 28 February,
following the early
general elections of 24 November 2002, was able to present
a programme update within a relatively short period of time.
However, more detailed quantitative information, as contained
in the draft federal budget proposal, was not available at the
time of the update's submission.

partly with

complies

in 2004,

in 2001 and 2002, mostly due to a reclassification in the
Austrian gross debt
reporting. The Council notes with
concern that, as a consequence, the goal of bringing gross
consolidated debt below the 60 % of GDP reference value has
now been significantly delayed. The update projects the general
government deficit to widen from 0,6 % of GDP in 2002 to
1,3 % in 2003, mainly due to deferred payments for flood
damages and a widening output gap. After a temporary
improvement
is projected to increase
the deficit
markedly to 1,5 % in 2005 owing to a sizeable income tax
reform. Thereafter, the deficit is estimated to gradually narrow
to 1,1 % of GDP in 2006 and 0,4 % of GDP by 2007. The
cyclically-adjusted deficit follows the pattern of the nominal
figures: it widens by 0,5 percentage points in 2003 to some
1 % of GDP, improves by virtually the same amount in 2004,
before rising strongly to 1,3 % in 2005 due to the planned net
tax relief. Despite narrowing thereafter, the deficit in cyclically-
adjusted terms remains at 1,1 % of GDP in 2006 and improves
by the required 0,5 percentage point to 0,5 % of GDP only as
late as in 2007. The government gross debt is expected to
decrease from its peak of 67,8 % of GDP in 2002 to slightly
below the 60 % reference value in 2007.

The budgetary projections of the programme are based on a
scenario expecting economic activity to
macro-economic
gradually resume from its current cyclical weakness. Real
GDP growth is forecast to accelerate from 1,0 % in 2002 to
2,5 % by 2005 and thereafter, amounting to annual average
growth of 2,1 % over the entire programme period. Although
the Council considers this growth
somewhat above trend,
outlook feasible, given that no significant macroeconomic
imbalances prevail
in the Austrian economy and provided
that the external environment improves as projected.

The Council notes with satisfaction that, in spite of lower-than-
projected growth, government
finances in 2001 improved
more rapidly than expected, although this favourable result
was brought about mainly by a strong increase in tax
in 2002 government finances weakened
revenues. However,
noticeably and deviated from the target, reaching a deficit of
0,6 % in cyclically-adjusted terms according to Commission
calculations.

The Council notes, moreover, that the debt ratio, which is still
above the 60 % of GDP reference value, increased substantially

The Council regrets that the Austrian government will not
reach its previous target of maintaining budgetary balance
and moving to a small surplus in 2004 and 2005. While
recognising that this is due to the planned tax reform, the
Council recalls that in its opinion (2) on the last update it
considered a budgetary surplus in the medium term central
in bringing down the debt level decisively, which the Council
regarded as appropriate in view of the long-term expenditure
Indeed, on the
pressures resulting from population ageing.
basis of current policies,
the risk of unsustainable public
finances in light of ageing populations can not be excluded.

(1) OJ L 209, 2.8.1997.

(2) OJ C 33, 6.2.2002.

C 123/2

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Official Journal of the European Union

24.5.2003

in these

reform projects

areas. The Council

In this context, the Council welcomes the attention paid to
longer-term issues, as demonstrated by the
fundamental
pension reform which is being prepared to tackle financial
and economic pressures from population ageing. The Council
strongly encourages the Austrian government to implement
with determination the ambitious
in the
fields of pensions and health care, addressing many of the
key problems
emphasised
repeatedly, also in its opinion on the last update and in the
Broad Economic Policy Guidelines, the importance of raising
the low effective retirement age in Austria and encouraging
labour force participation, in particular of older workers and
women. Therefore, the Council considers the planned pension
and health care reforms, provided they are fully implemented,
vital for containing upward pressure on expenditures in the
long run, apart from important medium- and even short-term
budgetary effects. Likewise,
the
Austrian government to implement its plans for rationalising
public administration, thereby enhancing the accomplishments
to date. Beyond these undertakings, the national stability pact
should be fully implemented, which would require spending
restraint
the
Länder level.

to attain sustainable structural

the Council

surpluses at

encourages

pro-cyclical stance, the Council urges the Austrian authorities
the tax reform by additional
to compensate the cost of
structural expenditure cuts. Past experience shows that
tax
cuts only partly matched by commensurate spending restraint
are a particularly risky strategy.

Given the considerable widening of the deficit, both in nominal
and structural terms after 2004, and the current debt level, the
the envisaged path of government
Council considers that
finances in the updated stability programme is only partly in
line with the requirements of the Stability and Growth Pact,
because the cyclically-adjusted deficit stays close to balance
only in the years 2004 and 2007. Although the projected
finances would leave sufficient safety
path of government
margin to prevent the deficit from breaching the 3 % of GDP
reference value in the event of a normal cyclical downturn, the
risks
In
particular,
the announced expenditure savings were only
sufficient
partly
budgetary leeway to let the automatic stabilisers work fully
in the event of a cyclical slowdown.

implemented, Austria would not have

strategy are non-negligible.

to the government's

if

invites the Austrian government

The Council notes the Austrian government's intention to
reduce, as recommended, the high tax burden significantly. In
the Council
particular,
to
implement
the reduction in non-wage labour cost, already
its
postponed several
opinion on the last update, stating that revenue reductions
should be accompanied by equivalent reductions of expen-
diture. Therefore,
in order to avoid the projected sizeable
increase in the cyclically-adjusted deficit and the risk of a

times. The Council recalls, however,

therefore, considers that
implemented as planned.

the expenditure cuts
The Council,
need to be
the
In addition,
envisaged tax relief ought to be accompanied by additional
expenditure restraint in order to avoid the risk of budgetary
slippage and to allow Austria to return earlier than foreseen to
a budgetary position close to balance. Already in 2003, the
government should seek to achieve a better deficit outcome
than projected, especially if growth should turn out higher
than expected or if the flood-related emergency funds were
not fully called upon.