Council opinion of 20 January 2004 on the Updated Stability Programme of Austria 2003 to 2007
Date: 2004-01-20
Institutions: Council of the European Union
Subjects: Austria, budget policy, economic policy, gross domestic product, public finance, stability programme

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Official Journal of the European Union

3.2.2004

the Stability and Growth Pact's medium-term objective of a
budgetary position of close-to-balance or in surplus should
be maintained over
the programme period. However, a
tendency of exceeding the medium-term spending guidelines,
as observed in the past, constitutes a risk to the government's
budgetary strategy. Therefore, the multi-annual spending limits
introduced by the new government which are now more
binding should help to keep expenditure under control.

The stability programme pays due attention to the sustain-
ability of public finances. On the basis of current policies,
public finances appear to be on a sustainable footing to meet
the budgetary costs of ageing populations, benefiting from the
sustained running of budget surpluses, and a reformed pension
system that
is to a large extent pre-funded. Sustainability
should also be underpinned by reforms, both planned and
underway, which aim at raising the employment rate, and
the Finnish authorities should proceed with their implemen-

tation according to the time frame indicated in the stability
programme.

The recent tax cuts and some further measures planned are
intended not only to boost employment and job creation,
but also to stem the erosion of tax bases as a consequence
of their increasing international mobility of production factors
(labour and capital). In order to safeguard the achievements of
the past decade of placing public finances on a sustainable
path, strict compliance with the newly defined expenditure
ceilings will be all the more crucial.

The economic policies as presented in the updated programme
are broadly consistent with the Broad Economic Policy
specifically those with budgetary implications,
Guidelines,
inter alia, the introduction
which recommended for Finland,
of multi-annual spending limits and the reduction of
the
high level of structural unemployment.

COUNCIL OPINION

of 20 January 2004

on the Updated Stability Programme of Austria 2003 to 2007

(2004/C 29/02)

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 20 January 2004 the Council examined the updated
stability programme for Austria which covers the period
2003 to 2007. The programme was
submitted on 18
November 2003 and largely complies with the revised ‘code
of conduct on the content and format of
stability and
quantitative
programmes’. However, more
convergence
information, as contained in the twin budget 2003/2004,
with detailed estimates for
individual budgetary measures,
would have proved useful and should have been included.

The budgetary strategy of the updated programme remains
long-term focus. Substantial
unchanged, with a distinct

(1) OJ L 209, 2.8.1997.

structural savings combined with sizeable tax cuts, while
cyclically-adjusted
causing a
deficit in 2005, should entail a steady decline in expenditure
and revenue ratios and in the debt ratio.

temporary widening of

the

the optimistic side, given the usual

the macro-economic scenario in the update
By and large,
the acceleration in employment
appears realistic. However,
in 2004 could lean
growth to 0,6 % (ESA95 definition)
towards
time-lag of
labour demand to a cyclical upturn of activity. Moreover,
real GDP growth in 2006 and 2007 would remain above
potential. The implicit closing of the output gap, however,
would not
sluggish
growth, due to the positive impact of recent and ongoing
structural reforms and enlargement, given that macroeconomic
imbalances are absent in the Austrian economy.

seem implausible after a period of

The

based

balance,

cyclically-adjusted

The update maintains the budgetary targets set in the previous
on
programme.
Commission calculations according to the commonly agreed
methodology,
is set to deteriorate by 0,9 percentage points
to 1,0 % of GDP in 2003 and, after a temporary improvement,
by 1,0 percentage point to 1,4 % of GDP in 2005 due to tax
cuts. Despite narrowing thereafter, the cyclically-adjusted deficit
will decline to 0,5 % of GDP only in 2007. Thus, the cyclically-
adjusted deficit is close to balance only in the years 2004 and
2007.

Under plausible macroeconomic and budgetary assumptions,
the Stability and Growth Pact medium-term objective of a
budgetary position of close to balance or in surplus may not
be achieved over the programme period. Although downside

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Official Journal of the European Union

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if

macroeconomic risks seem to balance with the better-than-
targeted budgetary outcome in 2003 with knock-on effects
on subsequent years, risks regarding expected savings and
surpluses from lower government
levels are non-negligible.
the announced expenditure savings were only
Moreover,
partly implemented or did not materialize as intended, the
planned temporary departure from the medium-term target
might turn out to be persistent. The budgetary stance in the
updated programme provides a sufficient safety margin against
breaching the 3 % of GDP deficit ceiling with normal macro-
economic fluctuations.

The government gross debt is expected to decrease steadily
from 66,7 % of GDP in 2002 to just below 60 % in 2007.
This forecast hinges crucially on the nominal GDP growth
assumptions and sizeable proceeds from planned privatisations.
Should any of these factors fall short of expectations, even if
only by a small margin, the debt-to-GDP-ratio would not fall
below the 60 % reference value also in 2007.

After the 2003 pension reform, Austria appears to be in a
considerably better position than before
the
budgetary costs of an ageing population. This evaluation,

to meet

however, needs to be confirmed by actual developments.
First, projections assume a reform-induced strong increase in
participation rates. Second,
the 10 percent cap on benefit
losses compared with the status quo ante renders long-term
exonerating
budgetary effects
effects on government finances are delayed due to a long tran-
sition period for abolishing early retirement until 2017.

rather uncertain. Moreover,

Economic policies as reflected in the update are only partly
consistent with the recommendations in the Broad Economic
specifically those with budgetary impli-
Policy Guidelines,
cations. Specifically,
‘a cyclically-adjusted budgetary position
close to balance’ is only partly respected. Moreover, in 2005
the general guideline to ‘avoid pro-cyclical policies’ may not be
observed. Although the planned reduction of
the high tax
burden is in principle an appropriate step to render supply
side conditions more growth-friendly,
reductions
should be accompanied by corresponding expenditure restraint.
As concerns Länder and communities, the update is silent on
‘structural
levels of
government’, which are required to attain permanent surpluses,
an obligation enshrined in a national stability pact.

expenditure

(also) at

revenue

savings,

lower

COUNCIL OPINION

of 20 January 2004

on the Updated Convergence Programme of Sweden 2003 to 2006

(2004/C 29/03)

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 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 20 January 2004 the Council examined Sweden's updated
convergence programme, which covers the period 2003 to
2006. The updated programme largely complies with the
data requirements of
the revised ‘code of conduct’ on the
content and format of stability and convergence programmes.

The budgetary strategy underlying the update is based on a
continuation of
the medium term objective of a budget
surplus of 2 % of GDP on average over the cycle, aimed at
preparing for the expected budgetary impact of the ageing of
the population and the sustainability of public finances in the
long-term. The planned return to a general government surplus
of 2 % of GDP beyond 2006 relies in particular on a decline in
the expenditure-to-GDP ratio from 2004 onwards
is
expected to rise in 2003), but also on a decline in the revenue-
to-GDP ratio from 2005 onwards (it is expected to rise in
2003 and remain unchanged in 2004).

(it

The update projects real GDP growth to accelerate from an
estimated 1,4 % in 2003 to 2,0 % in 2004.
In 2005 and
2006, growth is estimated to be 2,6 % and 2,5 %, respectively.
Employment growth is expected to pick up from 0,1 % in
2004 to 0,7 % in 2005 and 2006. CPI inflation is forecast to
gradually increase from 1,3 % in 2004 to slightly above 2 % by
the
2006. On the basis of currently available information,
scenario
macroeconomic
seems
realistic and is
in line with the Commission evaluation,
including the autumn forecast.

underlying

update

the

(1) OJ L 209, 2.8.1997.

The update targets a general government surplus of 0,6 % of
GDP in 2004, compared with an expected surplus of 0,4 % in