Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Austriaand delivering a Council opinionon the updated Stability Programme of Austria 2011-2014
Date: 2011-06-07
Institutions: European Commission
Subjects: Austria, budget deficit, economic policy, employment policy, pension scheme, social rights

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 801 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Austria 

and delivering a Council opinion 

on the updated Stability Programme of Austria 2011-2014 

{SEC(2011) 728 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Austria 

and delivering a Council opinion 

on the updated Stability Programme of Austria 2011-2014 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 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 
policies1, and in particular Article 5(3) thereof, 

Having regard to the recommendation of the European Commission2, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

On  26  March  2010,  the  European  Council  agreed  to  the  European  Commission's 
proposal  to  launch  a  new  strategy  for  jobs  and  growth,  Europe  2020,  based  on 
enhanced coordination of economic policies, which will focus on the key areas where 
action 
to  boost  Europe’s  potential  for  sustainable  growth  and 
competitiveness. 

is  needed 

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for 
the economic policies of the Member States and the Union (2010 to 2014) and on 21 
October 2010, adopted a decision on guidelines for the employment policies of  the 
Member  States3,  which  together  form  the  “integrated  guidelines”.  Member  States 
were invited to take the integrated guidelines into account in their national economic 
and employment policies. 

1 
2 
3 

OJ L 209, 2.8.1997, p. 1. 
OJ C , , p. . 
Maintained for 2011 by Council Decision 2011/308/EU of 19 May 2011. 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

On  12  January  2011,  the  Commission  adopted  the  first  Annual  Growth  Survey, 
marking  the  start  of  a  new  cycle  of  economic  governance  in  the  EU  and  the  first 
European semester of ex-ante and integrated policy coordination, which is anchored 
in the Europe 2020 strategy.  

On  25  March  2011,  the  European  Council  endorsed  the  priorities  for  fiscal 
consolidation  and  structural  reform  (in  line  with  the  Council’s  conclusions  of  15 
February  and  7  March  2011  and  further  to  the  Commission’s  Annual  Growth 
Survey). It underscored the need to give priority to restoring sound budgets and fiscal 
sustainability,  reducing  unemployment  through  labour  market  reforms  and  making 
new  efforts  to  enhance  growth.  It  requested  Member  States  to  translate  these 
priorities  into  concrete  measures  to  be  included  in  their  Stability  or  Convergence 
Programmes and National Reform Programmes. 

On  25  March  2011,  the  European  Council  also  invited  the  Member  States 
participating  in  the  Euro  Plus  Pact  to  present  their  commitments  on  time  for  their 
inclusion  in  their  Stability  or  Convergence  Programmes  and  their  National  Reform 
Programmes. 

On  27  April  2011,  Austria  submitted  its  updated  Stability  Programme  covering  the 
period 2011-2014 and on 2 May 2011 its 2011 National Reform Programme. In order 
to take account of the interlinkages, the two programmes have been assessed at the 
same time. 

The  Austrian  economy  entered  the  crisis  on  sound  fundamentals,  without  having 
suffered from any major imbalances or distortions in the period preceding it. In spite 
of  that,  the  financial  and  economic  crisis  has  pushed  the  economy  into  the  deepest 
recession  for  decades.  Overall,  real  GDP  contracted  by  almost  4%  in  2009.  As  a 
result of the crisis, employment fell by about 1% in 2009, lifting unemployment to 
4.8% (from 3.8% a year earlier).The crisis halted the previous continuous growth of 
current  account  surplus.  The  economic  and  financial  crisis  took  its  toll  on  public 
finances.  As  a  result  of  the  adoption  of  the  stimulus  packages  and  automatic 
stabilisers operating fully, the general government deficit reached 4.1% and 4.6% of 
GDP  in  2009  and  2010  respectively.  Public  debt  went  up  to  69.6%  and  72.3%  of 
GDP  in  the  same  years.  Since  most  of  the  stimulus  measures  were  of  permanent 
nature, there was a need for fiscal consolidation as soon as economic conditions had 
improved.  A  consolidation  package,  amounting  to  close  to  1%  of  GDP,  has  been 
adopted in the budget law for 2011. Since the third quarter of 2009, the economy has 
been steadily recovering from the crisis on the back of improved foreign demand and 
in  particular  of  stronger  economic  activity  in  Germany.  Overall,  real  GDP  growth 
reached 2% in 2010.  

Based on the assessment of the updated Stability Programme pursuant to Article 5(1) 
of  Council  Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the 
macroeconomic scenario underpinning the budgetary projections is plausible, and too 
favourable towards the end of the programme period. The main goal of the medium-
term budgetary strategy, presented in the latest update of the Stability Programme, is 
to  gradually  reduce  the  general  government  deficit  from  4.6%  of  GDP  in  2010  to 
2.4% of GDP in 2014, chiefly by expenditure restraint. There are mainly downside 
risks to these targets due to the fact that the measures to underpin the consolidation 
path at the sub-national level are unspecified and the fact that savings from some of 

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the  measures  adopted  at  the  federal  level  will  not  materialise,  e.g.  gains  from  the 
anti-tax-fraud  campaign  the  predicted  impact  of  which  seems  to  be  highly 
speculative. On the other hand, a positive risk factor is the multi-annual expenditure 
framework  introduced  for  the  federal  government  in  2009,  which  seems  to  have 
contributed to enhancing predictability of the budgetary process in the medium term, 
albeit only at the federal level. The programme stipulates that the debt-to-GDP ratio 
will grow from 72.3% in 2010 to 75.5% in 2013 before declining to 75.1% in 2014. 
However, there are some risks attached to this projection, which relate to the growing 
debt of state-owned companies classified outside the government sector and potential 
further burden stemming from support measures to the banking sector. At the same 
time,  however,  the  debt  ratio  might  turn  out  lower  as  it  is  probable  that  the  banks 
which  received  the  public  support  during  the  crisis  will  pay  it  back  ahead  of  the 
schedule that is assumed in the programme. 

(9) 

According  to  the  Programme,  the  general  government  deficit  is  expected  to  fall 
below the 3% reference value in 2013, which is in line with the deadline set by the 
Council.  However,  the  annual  average  fiscal  effort  of  0.35%  of  GDP  envisaged  by 
the programme in the period 2011-2013 is well below the 0.75% of GDP effort that 
the Council invited Austria to provide. 

(10)  While Austria has a developed National Stability Pact in place, further reforming the 
fiscal  relations  between  various  layers  of  government  would  bring  in  substantial 
savings,  support  fiscal  consolidation  and  free  up  resources  for  growth-enhancing 
investment  in  areas  such  as  R&D  and  education.  It  is  widely  acknowledged  that 
current  relations  are  complex:  not  only  are  revenues  from  most  individual  taxes 
shared  among  the  different  territorial  levels  in  fixed  proportions,  but  also  decision-
making in many areas is divided among various levels of authority. For a number of 
activities, revenue-raising and spending responsibilities do not reside within the same 
level of government. Notable examples of inefficiencies stemming from the current 
form of these fiscal relations are found in the health care and education sectors. 

(11) 

(12) 

The  average  tax  wedge  in  Austria  is  among  the  highest  in  the  EU.  Compared  with 
other EU countries, the social security contributions of employees are very high. The 
reduction of unemployment insurance contributions of low-wage earners in 2008 and 
the  income  tax  reform  of  2009  helped  reduce  the  labour  tax  burden,  but  could  not 
prevent  the  tax  wedge  from  increasing  slightly  for  both  low  and  average  income 
earners  as  compared  with  the  start  of  the  last  decade.  This  wedge  has  a  negative 
impact on employment, in particular of low-paid and low-skilled workers.  

The employment rate of older workers in Austria is still well below the EU average 
in  spite  of  a  sharp  rise  in  the  last  decade.  Early  retirement  schemes  and  disability 
pensions  are  still  widely  used.  Altogether  72%  of  all  new  pensions  in  2010  were 
granted before the statutory retirement age was reached. Another factor contributing 
to  the  low  employment  rate  of  older  workers  is  the  still  relatively  low  statutory 
retirement  age  for  women  (60).  Given  the  demographic  developments  in  Austria, 
raising  the  effective  retirement  age  and  improving  the  framework  enabling  older 
workers  to  stay  longer  in  the  labour  market  are  important  in  the  context  both  of 
ensuring sustainability of public finances and of boosting the labour supply, which is 
forecast to start shrinking from 2020 onwards.  

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(13) 

(14) 

(15) 

(16) 

The female employment rate in Austria is relatively high, associated with one of the 
highest rates of part-time work. Women's jobs are highly concentrated in low-wage 
employment. These patterns result in a gender pay gap of 25.4% which is the second 
highest in the EU and one of the factors leading to a relatively high poverty risk for 
women.  A  reason  for  female  part-time  work  is  the  uneven  distribution  between 
women and men of care obligations for children and the elderly and the lack of child 
care and long-term care services.  

The  education  system  is  characterised  by  "early  tracking",  whereby  pupils  have  to 
decide  at  the  age  of  10  about  their  future  education  path  with  limited  permeability 
between  paths,  and  widespread  half-day  schooling.  This  can  result  in  suboptimal 
educational  outcomes  for  vulnerable  youth,  in  particular  those  with  a  migrant 
background.  Early  choices  predetermine  to  a  large  extent  future  education  paths, 
making it more difficult to reach higher education levels at a later stage. A common 
school  for  all  10-14  year-olds  would  help  increase  equality  of  opportunities  in  the 
education system and help tackle school drop-out rates. 

Competition  in  the  services  sector,  in  particular  network  services  such  as 
telecommunications,  transport,  utilities,  as  well  as  retail  trade  and  professional 
services, is not sufficiently developed. Productivity growth has been sluggish and the 
market  structure  has  not  fostered  purchasing  power  and  consumer  demand. 
Promoting  competition  through  facilitating  market  entry,  reducing  the  statutory 
regulation of trades and professions and ensuring competitive pricing would expand 
consumer  choice  and  affordability.  Austria  has  accumulated  lengthy  delays  in 
implementing the Services Directive; addressing these could contribute to unlocking 
growth.  In  particular  the  "horizontal  law",  a  federal  law  implementing  the  main 
principles of the Directive, is still pending.  

the 

focus 

is  on  combating  youth  unemployment,  and 

Austria  has  made  a  number  of  commitments  under  the  Euro  Plus  Pact4.  The 
commitments refer to the three of the four areas of the Pact. On the fiscal side, the 
measures  address  the  need  to  raise  the  effective  retirement  age  as  well  as  control 
public  expenditure  more  effectively  at  the  various  levels  of  government.  For 
employment, 
for 
competitiveness, on investing further in research and technical education, as well as 
on  developing  models  for  all-day  schools.  The  initiatives  presented  under  the  Pact 
are  in  line  with  the  National  Reform  Programme  and  are  in  compliance  with  the 
Federal  Budgetary  Framework  Law  and  the  Stability  Programme.  However,  while 
the  measures  address  some  of  the  main  socio-economic  issues  facing  the  country, 
there  are  outstanding  challenges  that  could  usefully  have  been  covered  in  the 
commitments,  including  in  the  areas  of  fiscal  policy,  education,  competition  and 
innovation.  The  Euro  Plus  Pact  commitments  have  been  assessed  and  taken  into 
account in the recommendations.  

(17) 

The  Commission  has  assessed  the  Stability  Programme  and  National  Reform 
Programme,  and  the  Euro  Plus  Pact  commitments  for  Austria5.  It  has  taken  into 
account not only their relevance for sustainable fiscal and socio-economic policy in 
Austria  but  also  their  observance  of  EU  rules  and  guidance,  given  the  need  to 

4 
5 

More details on the commitments made under the Euro Plus Pact can be found in SEC(2011) 728. 
SEC(2011) 728. 

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reinforce the overall economic governance of the European Union by providing EU-
level  input  into  future  national  decisions.  It  considers  that,  given  the  favourable 
economic  conditions,  the  fiscal  consolidation  effort  should  be  stepped  up,  in 
particular  in  2012,  and  that  the  fiscal  relations  between  the  various  layers  of 
government  should  be  reformed  further.  Reducing  the  tax  wedge,  improving 
educational  outcomes,  and  combating  gender  segmentation  would  be  beneficial  to 
the  dynamism  of  the  labour  market,  while  enhancing  competition  and  fostering 
innovation would increase competitiveness.  

(18) 

In  light  of  this  assessment,  also  taking  into  account  the  Council  Recommendation 
under  Article  126(7)  of  the  Treaty  on  the  Functioning  of  the  European  Union  of  2 
December  2009,  the  Council  has  examined  the  2011  update  of  the  Stability 
Programme  of  Austria  and 
its 
recommendation under (1) and (2) below, 

its  opinion6 

in  particular 

is  reflected 

in 

HEREBY RECOMMENDS that Austria should take action within the period 2011-2012 to: 

(1) 

(2) 

(3) 

(4) 

(5) 

Take advantage of the ongoing economic recovery to accelerate the correction of the 
excessive  deficit.  To  this  end,  adopt  and  implement  the  necessary  measures, 
including at the sub-national level, in order to ensure an average annual fiscal effort 
of at least 0.75% of GDP in 2012 and 2013.  

Take  steps  to  further  strengthen  the  national  budgetary  framework  by  aligning 
legislative,  administrative,  revenue-raising  and  spending  responsibilities  across  the 
different levels of government, in particular in the area of health care.  

In  consultation  with  the  social  partners  and  according  to  national  practices,  take 
measures  to  phase  out  the  current  early  retirement  scheme  for  people  with  long 
insurance periods and bring forward the increase in women's statutory retirement age 
to  ensure  the  sustainability  and  adequacy  of  the  pension  system.  Apply  strictly  the 
conditions for access to the invalidity pension scheme. 

Take  measures  to  enhance  participation  in  the  labour  market,  including  the 
following: reduce, in a budgetary neutral way, the tax and social security burden on 
labour,  especially  for  low  and  medium-income  earners;  implement  the  National 
Action  Plan  on  the  equal  treatment  of  women  and  men  on  the  labour  market, 
including  improvements  in  the  availability  of  care  services  and  of  all-day  school 
places  to  increase  the  options  for  women  to  work  full-time  and  in  the  high  gender 
pay gap; take steps to improve educational outcomes and prevent school drop-out. 

Take  further  steps  to  foster  competition,  in  particular  in  the  services  sectors,  by 
relaxing barriers to entry, removing unjustified restrictions on trades and professions, 
as  well  as  enhancing  the  powers  of  the  competition  authorities.  Accelerate  the 
adoption of the outstanding "horizontal law" implementing the Services Directive. 

6 

Foreseen in Article 5(3) of Council Regulation (EC) No 1466/97. 

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Done at Brussels, 

For the Council 
The President 

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