COMMISSION STAFF WORKING DOCUMENT Assessment of the 2014 national reform programme and stability programme for AUSTRIA Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Austria’s 2014 national reform programme and delivering a Council opinion on Austria’s 2014 stability programme
Date: 2014-06-02
Institutions: European Commission
Subjects: Austria, budget deficit, economic convergence, economic growth, economic reform, economic stabilisation, financial control, job creation, multilateral surveillance, social situation, stability programme, structural adjustment













EUR-Lex - 52014SC0421 - EN











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52014SC0421

COMMISSION STAFF WORKING DOCUMENT Assessment of the 2014 national reform programme and stability programme for AUSTRIA Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Austria’s 2014 national reform programme and delivering a Council opinion on Austria’s 2014 stability programme /* SWD/2014/0421 final */









Contents
Executive summary. 3
1............ Introduction. 5
2............ Economic situation and outlook. 5
3............ Challenges and assessment of policy
agenda. 6
3.1......... Fiscal policy and taxation. 6
3.2......... Financial sector 13
3.3......... Labour market, education and social
policies. 14
3.4......... Structural measures promoting sustainable
growth and competitiveness. 18
3.5......... Modernisation of public administration. 24
4............ Conclusions. 25
Overview table. 26
Annex... 30

Executive summary

Austria’s
economic activity is expected to rise in 2014, as domestic demand strengthens
and exports increase. According to the Commission 2014 spring
forecast, output growth is projected to pick up to 1.6 % in 2014 and 1.8 %
in 2015. Low interest rates and stable corporate liquidity are expected to favour
a rebound in investment. With inflation easing and the job market improving,
growth of real disposable income should support growth in consumption. Unemployment
is foreseen to remain at around 5 % due to a parallel increase in the
participation rate.
Overall,
  Austria has made some progress in addressing the 2013 country-specific
recommendations. Most of the reforms will have an impact only in the
medium to long term, however. Work has continued on the implementation of
healthcare reform and policies to extend working lives, to improve secondary
and tertiary education and to help realise the labour market potential of women,
older workers and people with migrant background. Some progress has also been
made with the restructuring of the banking sector. The national reform programme
and the stability programme, submitted on 8 and 29 April respectively, lay out
national policy priorities and a series of measures to address most, but not
all challenges targeted by the 2013 country-specific recommendations. The documents
state the recognition of and commitment to achieving the priorities of the
Annual Growth Survey. However, they seem to lack a comprehensive strategic
approach to address the fiscal sustainability risks faced by Austria in the medium-term through more decisive and structural policy measures.
Significant
challenges remain with respect to safeguarding the long-term growth potential, ensuring
fiscal sustainability in light of the ageing population, and enhancing the
stability of the banking system. Austria needs to
maintain the momentum of reforms in the labour market, pensions, healthcare and
education, and to do more to promote competition in the services sector. It
also needs to ensure effective progress in restructuring distressed banks.

 Labour
     market participation: the Austrian labour market
     continues to perform well. It has the lowest unemployment rate in the EU
     (4.9 % in 2013). However, the participation of particular groups in
     the labour market is significantly lower than the overall participation
     rate. The employment rate of older workers is below the EU average, the
     gender pay gap is one of the highest in the EU and limited availability of
     childcare and long-term care services restricts full‑time employment
     opportunities for women. People with a migrant background face higher than
     average unemployment and are often not employed according to their
     qualification level. Demographic changes relating to the ageing society
     and shrinking labour force, coupled with an increasing proportion of
     workers with migrant background, pose challenges for the medium and long term.
 Long
     term sustainability: measures to limit the access to
     early retirement and to increase incentives for staying in employment longer
     entered into force in 2014. The new government has introduced ambitious
     targets to raise the effective retirement age by 2018. Nonetheless, structural
     measures, such as the equalisation of the statutory age of retirement for
     men and women and the creation of a link between the statutory retirement
     age and life expectancy, have not featured. A healthcare expenditure rule
     aims to stabilise healthcare expenditure as a percentage of GDP. The efficient
     allocation of resources in the Austrian healthcare system is still, however,
     hampered by a complex governance structure and a relatively strong concentration
     of resources on the large and costly hospital sector and below EU-average
     spending on preventive healthcare. The on-going healthcare reform aims to
     overcome the institutional fragmentation of healthcare services and to
     stabilise healthcare expenditure as a percentage of GDP.
 Education:
     despite some progress, educational achievement in reading is below average,
     and the socio-economic background of parents continues to have a significant
     influence on children’s educational achievement. The high drop-out rate in
     higher education illustrates the need for a comprehensive strategic and
     financial framework, which has not yet been developed.
 Competition
     in services: anti-competitive practices –
     including entry barriers and unjustified restrictions on service providers,
     and anti-competitive behaviour of incumbent firms – have persisted, most
     notably in the regulated professions and in railway transport. The competition
     authority’s shortage of resources has not been adequately addressed.
     Significant potential benefits from competitive tendering in public
     procurement are not being exploited.
 Banking
     sector: the stability of the financial sector would be
     improved through decisive steps to complete the restructuring of nationalised
     banks.


1.        
Introduction

In
May 2013, the Commission proposed a set of CSRs for economic and structural
reform policies for Austria. On the basis of these recommendations, the Council
of the European Union adopted seven CSRs in the form of a Council Recommendation
in July 2013. These recommendations related in particular to public finances, pensions,
health and long-term care, the labour market, education, competition in
services and the financial sector. This staff working document (SWD) assesses
the current level of progress in implementing these recommendations in Austria.
The SWD assesses
policy measures in light of the findings of the Commission’s Annual Growth
Survey 2014[1]
and the third annual Alert Mechanism Report (AMR),[2] which
were published in November 2013. The Annual Growth Survey sets out the
Commission’s proposals for building the necessary common understanding of the
priorities for action at national and EU level in 2014. It identifies five
priorities to guide Member States to renewed growth: pursuing differentiated,
growth friendly fiscal consolidation; restoring normal lending to the economy;
promoting growth and competitiveness for today and tomorrow; tackling
unemployment and the social consequences of the crisis; and modernising public
administration. The AMR serves as an initial screening device to determine
whether macroeconomic imbalances exist or risk emerging in Member States. The AMR
found positive signs that macroeconomic imbalances in Europe are being
corrected. To ensure that a complete and durable rebalancing is achieved, 16
Member States were selected for a review of developments in the accumulation
and unwinding of imbalances. These in-depth reviews were published on 5 March
2014 along with a Commission Communication.[3]
On
the basis of the 2013 Council Recommendations, the Annual Growth Survey and the
AMR, Austria presented a national reform programme on 08 April 2014 and a
stability programme on 29 April 2014. These programmes provide detailed
information on progress made since July 2013 and on the government’s plans. The
information contained in these programmes provides the basis for the assessment
made in this SWD.
The programmes
submitted underwent an inclusive consultation process involving the national
parliament, local and regional authorities and stakeholders.

2.        
Economic situation
and outlook

Economic situation
In 2013, the Austrian economy faced an environment
of perceived uncertainty, leading to slow foreign and stagnating domestic
demand. Economic growth decelerated further to 0.3 %
in 2013 from the level of 2.8 % seen in 2011. Businesses revised their investment
plans downwards and investment growth turned negative. Private consumption
stagnated despite a solid labour market. Net exports showed a slight improvement
on the previous year, due to declining imports, and this helped to avoid a
recession. The growth in employment slowed in 2013, reflecting stagnating
output. The increase in the labour force prevented a decline in the
unemployment rate however. Nominal wage growth only very marginally exceeded
inflation. Signs of a recovery are emerging from the data available at the
start of 2014. Albeit somewhat inconsistently, business and consumer sentiment have
been improving since mid-2013, while retail sales and manufacturing output
showed positive year-on-year growth in January and February.
Economic outlook
The
Commission 2014 spring forecast assumes a consolidation of business and
consumer confidence over 2014 and 2015. GDP growth is
projected to regain some momentum and reach 1.6 % and 1.8 %
respectively, driven by a strengthening of domestic demand. Net exports are
expected to contribute positively to growth. This is due in part to faster
growth in exports, but more significantly to domestic demand, as a rebound in
imports is also forecast which will lessen the growth in net exports. Low
interest rates and stable corporate liquidity are expected to give companies
sufficient reassurance for them to carry out essential replacements and
extensions of capacity. Credit growth is expected to remain subdued, however,
on account of both weak demand and the banking sector’s need to deleverage. Increases
in wages over the coming years are expected to be moderate. With inflation
easing over the forecast horizon and employment strengthening, growth in real
disposable income is however projected to support an increase in consumption.
The
stability programme and the national reform programme submitted by the Austrian
authorities on 8 and 29 April 2014, respectively, share the same economic
outlook as formulated by the Austrian Economic Research Institute (WIFO) on 27
March 2014. The underlying macroeconomic scenario is broadly in
line with the Commission 2014 spring forecast, but with more optimistic
projections of potential growth and labour income. The documents contain
estimates of disbursements of funds for specific structural measures but the
expected quantitative impacts are only limited to the budget projections.

3.        
Challenges and assessment of policy agenda
3.1.                
Fiscal policy and taxation

Budgetary
developments and debt dynamics
The current
Stability Programme includes also the updated Draft Budgetary Plan for 2014 and
the Draft Budgetary Plan for 2015, which have been sent to the Commission on
the 29th of April. The main purpose of the Stability Programme (SP) is to reach
the Medium-Term Objective (MTO) by 2016. The current Programme confirms the MTO
of a structural deficit of 0.45 % of GDP, reflecting the objectives of the
Pact.
In 2013 the
general government deficit reached 1.5% of GDP, significantly better than the
target of last year Stability Programme which planned a deficit of 2.3% of GDP, 
mainly due to the one-off effect of the sale of mobile telephonic spectrum
(0.6% of GDP) , whose final impact significantly exceeded expectations. This
one-off revenue, recorded as negative capital expenditure contributed to a
lower expenditure GDP ratio (51.2%) relative to that included in the DPB sent
in October (51.9%). Lower expenditure growth achieved in the implementation of
the 2013 Budget has more than compensated lower than expected revenue from
indirect taxes. 
In 2014 the
Stability Programme projects the deficit to increase to 2.7% of GDP. According
to Commission's forecast the increase of the deficit will be marginally larger
(2.8% of GDP). The main reason for the deterioration in the budget balance is
the impact of the establishment of a defeasance structure (Liquidation Entity,
Abbaueinheit) for the Hypo Group Alpe Adria Bank (Hypo). The purpose of this
entity is to manage the winding down of all the assets currently in the balance
sheet of Hypo, with the exception of those related to the South-East Europe
network of subsidiaries which will be transferred to a different holding and
sold separately. The estimate made by a group of expert appointed by the
government, indicates that the deficit-increasing impact of this operation
would amount to 4 billion of euro in 2014 (1.2% of GDP). This still preliminary
estimate, including a capital injection of 750 million of euro, already
undertaken in 2014, is included in both government and Commission's forecast.
The final budgetary impact of the operation will be assessed by Eurostat
following an independent asset quality review of Hypo's Asset to be undertaken
later this year. The budget for 2014 contains two consolidation packages,
including measures equivalent in total to 0.4% of GDP split between 0.24% of
GDP on the revenue side, already adopted with the Tax Package in February and
0.15% of GDP on the expenditure side The headline deficit is expected to
decline to 1.4% of GDP in 2015, mainly reflecting the diminishing impact of
one-off support to Hypo. 
For 2015, the
additional discretionary effect of the tax package account for additional
revenue amounting to 0.1% of GDP. According to the information
included in the Stability Programme on the expenditure side no additional
further measures are envisaged to be adopted,. To this extent it is not clear
whether past expenditure savings planned for 2015 in the 2013 Stability
Programme, relative in particular to lower expenditure in the pension and
unemployment insurance system and in subsidies (accounting for 0.4% of GDP) are
still expected to take place. This is an important aspect that Austrian
authorities should clarify in order to assess the medium-term budgetary
strategy outlined in the Programme since a sensible reduction by 1.7 pps in the
expenditure ratio which is estimated to decrease to 50.7% of GDP is projected
in 2015. The Commission's forecast of the government deficit for 2015 (2.5% of
GDP) slightly exceed the estimate of the Programme, mainly due to higher
expenditure projections, in particular subsidies in percentage of GDP are
projected to experience a lower reduction than in the Stability Programme. 
In the following
years the Medium-Term Budgetary Framework of the Programme points to a
continuing reduction in both the revenue and the expenditure ratio
leading to a deficit of 0.5% in 2018. Last year's Stability Programme envisaged
the revenue ratio to remain broadly constant up to 2017. 
In light of this
revised scenario, the planned achievement of the MTO by 2016 is supported by  a
more pessimistic outlook, pointing to a negative output gap over the whole
horizon covered in the projections (2013-2018), while in last year Stability
Programme the output gap was expected to close in 2016. 
Box 1.
Council recommendations addressed to Austria
On 2 December 2009, the Council decided that an
excessive deficit existed in Austria and adopted a Council Recommendation under
Art. 126(7) TFEU. The Council recommended Austria to correct its excessive
deficit by 2013. To this end, Austria should: bring the general government
deficit below 3% of GDP in a credible and sustainable manner; ensure an average
annual fiscal effort of ¾% of GDP over the period 2011-2013, which should also
contribute to bringing the gross debt ratio back on a declining path that
approaches the reference value at a satisfactory pace by restoring an adequate
level of the primary surplus. 
On 9 2013 July, the Council also addressed recommendations
to Austria in the context of the European Semester. In particular, in the area
of public finances the Council recommended to Austria to implement the 2013
budget as envisaged and to attain the MTO by 2015.The Council also recommended
to harmonise the pensionable age between men and women and to link retirement
age to life expectancy. 
The
implementation of the 2013 Budget, besides ensuring the deficit to stay below
3% as confirmed by validated figures, has led to an average structural
adjustment over the period 2011-2013 of 0.7%, very close to that recommended by
the Council (3/4 % of GDP) to correct the excessive deficit by
the deadline. The current Commission spring forecast confirms that a
sustainable correction of the deficit has been achieved given that the deficit
will not exceed the 3% threshold over the forecast horizon
Under the
assumption that the EDP is abrogated, Austria will be in transition period as
from 2014 and will have to make sufficient progress towards the debt reduction
benchmark,
defined by the minimum linear structural adjustment in 2014 and 2015.
Thereafter, i.e. from 2016, Austria should show a debt-to-GDP ratio fully
compliant with the debt benchmark, i.e. sufficiently diminishing towards the
60% reference value. Both the change in the structural balance projected by the
Programme and the Commission's forecast ensure the respect of the debt
criterion in 2014 and 2015.
The Programme
projects an increase in the debt ratio by roughly 5 pps. to 79.2% of GDP in
2014.
This is linked to the inclusion in general government debt of an amount of 17.8
billion corresponding to the amount of liabilities incurred in connection with
the transfer of the impaired assets of Hypo Alpe Adria to the Liquidation
Entity. Eurostat's guidelines for the recording of impaired assets operation
envisage that both assets and liabilities of public wind-down entities have to
be included in the government balance sheet and therefore public debt has to
include the relevant debt instruments of the entity. The impact on public debt
will fade out over time as a result of the winding-down of assets and the
reimbursement of liabilities. The DBP expects the debt level to decrease to
77.6% of GDP. The Commission expects slightly higher debt both in 2014 and
2015. The reduction in public debt level is assumed to continue over the
horizon of the Stability Programme which projects public debt on a downward
path decreasing to 71.5% of GDP in 2018. 
Under the
assumption that the EDP is abrogated, Austria will be subject to the preventive
arm of the SGP and should ensure sufficient progress towards its
MTO starting from 2014. With a debt ratio above 60% and normal cyclical
conditions (the output gap falls in the interval between -1.5% and 1.5% of
GDP), Austria is required to pursue an annual structural adjustment toward the
MTO of above 0.5% in 2014, which has been operationalized in agreement with
Member States as a requirement of an effort of at least 0.6% of GDP. 
The Stability
Programme (as recalculated by the Commission using the commonly agreed
methodology) envisages virtually no improvement in the structural balance,
implying an unchanged structural deficit of 1.0% in 2014. The Commission's
forecast projects a negative structural effort of 0.1% of GDP. According to the
information provided in the Programme, the growth rate of government
expenditure, net of discretionary revenue measures, leads to a deviation from
the expenditure benchmark by around 1.6% of GDP. This is due essentially to the
cost of establishing the planned Hypo Alpe Adria defeasance structure and other
planned financial sector measures, since such expenditure-increasing one-offs
are not excluded from the computation of the expenditure benchmark. The
expenditure benchmark based on spring forecast projects a higher deviation of
1.8% of GDP.
 The above
analysis of Austria's budgetary developments, with the structural balance as a
reference, including the analysis of expenditure, net of discretionary revenue
measures, points then to the existence of a risk of significant deviation based
on both Programme’s plans and the Commission's forecast in 2014.
In 2015 the
Programme projects a larger improvement in the structural balance than the
Commission’s forecast (0.3% and 0.1% of GDP respectively).
Nevertheless, the risk of significant deviation persists also in 2015 based on
both pillars on a two-year horizon since both the two year change in the
structural balance and in the growth rate of expenditure are projected to
deviate by 0.5% from the required adjustment. This is confirmed by Commission’s
forecast According to the plan of the Stability Programme Austria will not meet the MTO by 2015.
On 12 May 2014,
the Austrian authorities announced their commitment  to take additional
discretionary measures, not included in the updated DBP, that, together with
better than expected revenue  related to an improved projection for employment,
amount to close to EUR 1 billion in 2014. 
On the revenue
side, the additional measures involve concrete actions to reduce fraud on capital
gain tax, a reduction of the deductibility of costs in corporate income tax and
the application of a stricter regime in relation to voluntary disclosure of tax
fraud. On the expenditure side, savings are expected from the reduction in
pensions and other expenditure of semi-public companies and from streamlining
the provision of subsidies and transfers in order to avoid duplications. In
addition, a further reduction in discretionary spending for all expenditure
categories, except items with growth-enhancing potential, are envisaged to take
place by mean of a government's decision. 
The Commission
has evaluated the nature and possible yield of these measures. According to its
assessment, those measures that are of a structural nature, have plausible
yields and have an adequate legal basis could effectively amount to EUR 630
million (0.2% of GDP) in 2014, provided that they are fully implemented. 
These measures,
if fully and timely implemented, should thereby reduce the planned deviation
from the required adjustment path towards the MTO in 2014 from 0.6% to 0.4% of
GDP.
     || Box 2. Main budgetary measures ||   
   || Revenue || Expenditure ||   
   || 2014 ||   
   || ·      Increase in indirect taxes (vehicle insurance tax, tobacco and other tax on products) (0.1% of GDP) ·      Change of the tax base in corporate taxation (0.1% of GDP) ·      Fight against tax fraud (0.09% of GDP)   || ·      Reduction in non-obligatory expenditure (-0.26% of GDP). ·      Reduction in pension expenditure and increase in effective retirement age (-0.2% of GDP) ·      Reduction in subsidies and transfers (-0.03% of GDP) ·      Increase spending in education, research, and family care services (0.15% of GDP).   ||   
   || 2015 ||   
   || ·      Increase in indirect taxes (vehicle insurance tax, tobacco and other tax on products) (0.05% of GDP) ·      Change of the tax base in corporate taxation (0.05% of GDP)   || ·      Reduction in non-obligatory expenditure (0.14% of GDP) ·      Increase spending in education, research, and family care services (0.09% of GDP).     ||   
   || 2016 ||   
   || ·      Financial Transaction tax (0.14 % of GDP). || ·         Reduction in pension expenditure due to increase in effective retirement age (-0.04% of GDP   ||   
   || Note: The budgetary impact in the table is the impact reported in the programme, i.e. by the national authorities including also the effect of the additional measures as estimated by the Commission, communicated on 12 May 2014. A positive sign implies that revenue / expenditure increases as a consequence of this measure. ||   
Fiscal
framework
In
2013, Austria received a CSR concerning the streamlining of fiscal relations
between layers of government. The analysis undertaken for this SWD
leads to the conclusion that Austria has made limited progress on measures
taken to address this recommendation (for the full CSR assessment see the
overview table in Section 4).
The reform of the Austrian Internal Stability Pact, which entered
into force in 2012, has strengthened Austria’s fiscal framework. It served to
translate into national legislation the Fiscal Compact and Council Directive
2011/85/EU on budgetary frameworks.
Nevertheless, specific weaknesses, in particular those relating to complex
federal fiscal relations and the mismatch between funding and spending
responsibilities, have not been directly addressed.
The mandate of Austria’s Fiscal Council has been extended as of November
2013. In response to the requirements of the Fiscal Compact, it is now
responsible for monitoring the conditions which would trigger the correction
mechanism contained in the structural balance rule, and assessing the
possibility of issuing recommendations designed to activate, prolong or
terminate the correction mechanism. The law conferring responsibility for the
new tasks on the institution also formally changed its name from the Government
Debt Committee to the Fiscal Council, in order to better reflect its current
role. The responsibility for producing the official, independent macroeconomic
forecast underpinning the government’s budgetary plans remains with the
Austrian Institute of Economic Research.[4]
The set of multiple fiscal rules included in the Austrian Internal
Stability Pact aims to ensure stronger fiscal discipline by introducing an approach
based on output targets. In particular, the
application of the expenditure benchmark to regional and local government
strengthens the medium-term budgetary framework by introducing an annual cap
for expenditure growth. An analysis of state and local government expenditure
shows that they are quite volatile. In many years, the annual nominal
expenditure growth of both states and municipalities overshot approximations of
the limits which the new expenditure rule would have imposed. Moreover, states’
average expenditure growth has in the past been above this benchmark. Subsidies
and capital transfers are the main causes of the high expenditure figures.
Local governments perform slightly better, with average expenditure growth
remaining below the reference ratio set by the new expenditure rule. In some
years, however, expenditure growth departed considerably from the reference
ratio, such as in 2008, when subsidies to the healthcare sector drove up local
expenditure growth. The effectiveness of the fiscal rules will therefore depend on
their ability to encourage reforms in specific areas such as the healthcare
sector. The Austrian Internal Stability Pact also contains a provision whereby
all three levels of government are obliged to submit their medium-term
budgetary plans (the state and local government in a relatively detailed form)
to the coordination committee (a body administering the Stability and Growth
Pact) by 31 August each year. These are legally binding according to the pact,
but the stringency and effectiveness of this rule should be closely monitored
in future.
The coalition agreement, which sets the policy priorities of the
new government, recognises the need for a reform of Austria’s federal system. According to the government’s plan, the objective of the reform
would be to modernise the current division of power between layers of
government. It would also reduce the use of the system of mutual approval
rights between federal and state governments which currently applies when passing
legislation addressing several policy areas where responsibilities are divided between
the levels of government. Although various unsuccessful attempts to overhaul
the complex federal system have been made in the past, the adoption and
implementation of this reform would be crucial to streamlining federal
relations between levels of government.
Long-term sustainability
Austria
appears to face medium fiscal sustainability risks in the medium-term. The
medium-term sustainability gap[5],
showing the adjustment effort up to 2020 required to bring debt ratios to 60 %
of GDP in 2030, is at 1.7% of GDP, primarily related to the structural primary
balance in 2015. In the long-term, Austria appears to face medium fiscal
sustainability risks, primarily related to the projected ageing costs
contributing with 3.6 pp. of GDP over the very long run. The long-term
sustainability gap[6]
shows the adjustment effort needed to ensure that the debt-to-GDP ratio is not
on an ever-increasing path, is at 3.5% of GDP. Risks would be higher in the
event of the structural primary balance reverting to lower values observed in
the past, such as the average for the period 2004-2013. It is therefore
appropriate for Austria to continue to implement measures that reduce
government debt and further contain age-related expenditure[7]
growth to contribute to the sustainability of public finances in the
medium/long term.
Last
year Austria received a recommendation for bringing forward the equalisation the
pensionable age for men and women, increasing the effective retirement age by making
the retirement age and pension benefits dependent on changes in life expectancy
and implementing and monitoring the recent reforms restricting access to early
retirement. The analysis in this SWD leads to the
conclusion that Austria has made some progress on measures taken to address
this recommendation (for the full CSR assessment see the overview table in
Section 4).
The
reforms to the pension and the health system adopted last year could, to a
certain extent and under certain conditions, improve the sustainability of
public finances in the medium term. This will be
the case if the measures are fully implemented, if actions in these fields are
intensified and if conditions are created to allow a fundamental change in the
approach to public finances. At the beginning of 2014, some measures to limit
the access to early retirement and to increase incentives for remaining in
employment longer entered into force. The new government has introduced
ambitious targets to raise the effective retirement age by 2018. It has also
announced the binding nature of the targets. Structural measures, such as the equalisation
of the statutory retirement age for men and women and the linking of the
statutory retirement age to life expectancy, have not been included, however.
Some
steps have been taken to address the inefficiencies of the healthcare system,
but the approach adopted by the government of containing healthcare expenditure
by capping the growth in expenditure at the level of nominal GDP growth may be
difficult to maintain. In the past, general
government health spending mirrored GDP growth in years when the growth in
output was quite robust. Experience shows, however, that such a rule may be
difficult to maintain, in particular when the economy slows down or when
specific events, such as the assumption of public hospitals' debt, drive up
spending. Additional safeguards to ensure the budget cap is maintained through
timely monitoring exercises are planned by the authorities.
Tax
system
Austria’s
tax system is characterised by the high tax burden placed on labour, with
labour tax accounting for 24.7 % of GDP in 2012, the second highest in the
EU, affecting incentives to work for low- and median income earners. Although
  Austria shows nevertheless a good labour market performance, there is
potential for further improvement. Austria's implicit tax rate on labour is the
third highest in the EU with relatively high social security contributions on
labour. Its tax wedge for single workers ranks 6th at 67 % of average wage
and 5th at 100 % of average wage, amounting to almost 50 percent of labour
costs. This is mirrored in the high marginal tax rates for low and median
earners.
Together, high
social contributions and entry income tax rates lower incentives to work for
individuals with low earnings potential, second earners and women, whose share
of workers in part-time in Austria is well above EU-average. High social
contributions and entry income taxes are likely to lower incentives to work for
individuals with low earnings potential, particularly through the interaction
with the social benefit system, and for second earners i.e. mostly women.
Austria scores among the  countries having the highest low-wage trap[8] for
second earners and the employment rate of low skilled people is 19.6 percentage
points lower than the general employment rate (EU-average: 16.3 percentage
points). Reducing the tax burden on labour, in particular for low-income earners,
would furthermore increase the resilience of the Austrian labour market to
downside-risks.
Austria
has scope to shift from labour taxation to other taxes less detrimental to
growth, such as recurrent taxes on immovable property. This
was also a recommendation made in 2013. It called on Austria to reduce the tax
and social security burden on labour affecting low-income earners in particular
in a budget-neutral way by relying more on other sources of taxation. The
analysis in this SWD leads to the conclusion that Austria has made limited progress
in addressing this recommendation (for the full CSR assessment see the overview
table in Section 4). 
Austrian
Parliament approved minor reductions in employers' social security
contribution, but the recently adopted tax package does not include measures
further to reduce the tax burden on labour or to exploit the potential for a
tax shift. Thus, Austria has shown limited progress in improving the structure
of its tax system. In March 2014, the Austrian National
Council approved a reduction of non-wage labour costs by 0.1 pp from July 2014
and an additional 0.1 pp by January 2015. Earlier in 2014, it adopted a law
proposal on a tax package (Abgabenänderungsgesetz 2014) increasing tax revenue
by 0.2 % of GDP in 2014 and by an additional 0.1 % of GDP in
following years. It includes measures aimed at broadening the tax base of
direct taxes and increasing indirect tax rates such as excise duties on
alcohol, tobacco and car taxes. This package does however not include
substantial measures to shift the tax burden towards taxes less detrimental to
growth, notably to revenues from recurrent taxes on immovable property. The
revenue raised by Austria with these taxes was the fourth lowest in the EU in
2012 (0.2 % of GDP). They are levied on a base of cadastral values which
have largely not been updated since 1973. The adjustment in the cadastral
values is a process which takes time to be finalised but it is likely to lead
to additional revenue. The share of environmental taxes is in line with EU
average.

3.2.                
Financial sector

 Banking
sector capitalisation continued to improve in 2013, although NPLs continue to
rise and foreign currency loans remain a concern. The total capital
adequacy ratio reached 14.9 % at the end of June 2013, rising from 14.2 %
at the end of 2012. The tier 1 capital ratio (based on consolidated assets only)
meanwhile increased to 11.5 % by mid-2013, from 11 % at the end of 2012.
The six largest Austrian credit institutions are subject to comprehensive
assessment by the European Central Bank. The profitability of Austrian banks came
under renewed pressure in the first half of 2013, as operating costs and the
cost of risk both continued to rise. The continuing deterioration of asset
quality in roughly half of the countries in central, eastern and south-eastern Europe where Austrian banks operate has led to there being a higher ratio of consolidated non-performing
loans (NPLs) than unconsolidated NPLs. The NPL ratio as calculated on a
consolidated basis (i.e. including all NPLs held by Austrian banks and their
subsidiaries) reached 8.8 % in mid-June 2013, whereas the unconsolidated
NPL ratio (i.e. excluding NPLs of foreign subsidiaries) stood at 4.4 %. Notwithstanding
several supervisory measures adopted in recent years to curb foreign exchange
lending to unhedged borrowers and to limit new lending in foreign currency, the
stock of foreign currency loans (mostly denominated in Swiss francs) is still likely
to create challenges for the Austrian banking sector in the future. Approximately
70 % of foreign currency loans to households are bullet loans,[9] most
of them linked to repayment vehicles that are sensitive to financial market
developments.
In
2013, the Council Recommendation for Austria contained a CSR on financial
stability and the banking sector, specifically highlighting the need for close
oversight of the banking sector and increased efforts to restructure
nationalised and partly nationalised banks. In line with
the recommendations, authorities have taken steps towards restructuring
nationalised and partially nationalised banks. The banks remain however in a
difficult situation.
Österreichische
Volksbanken AG (ÖVAG) has proceeded with the implementation of the
restructuring plan approved by the European Commission, but the low
profitability and continued deterioration of asset quality has made the
restructuring process more complicated. ÖVAG started
the process of selling its Maltese subsidiary in September 2013. In June 2013,
ÖVAG and Raiffeisen reached an agreement whereby the latter will buy a
portfolio of corporate claims worth around EUR 1 billion from ÖVAG. The bank is
still however struggling to return to profitability. At the end of September
2013, Volksbanken recorded a post-tax loss of around EUR 67 million. Due to the
ongoing downsizing process and the reduction in risk-weighted assets, the
capitalisation of the bank has improved, with tier 1 capital reaching 13.0 %
of total assets at the end of September 2013 compared to 10.9 % at the end
of 2012.
In September
2013, the European Commission approved Hypo Group Alpe Adria’s restructuring
plan.
Following the sale of Hypo Bank Austria at the end of May 2013 to India’s Anadi
Financial Holdings, the company will be wound up according to the following schedule:
(i) the network of subsidiaries in south-eastern Europe will be sold by 30 June
2015; (ii) a separate company (a liquidation entity) will be set up with the
purpose of winding down all entities and portfolios as quickly as possible,
with any part not sold by 30 June 2015 being transferred to this unit.[10] According
to the stability programme, the legal framework for the wind-down of Hypo Alpe
Adria is to be presented for adoption by Parliament by summer. The
organisational preparation of setting up the respective asset management
company (AMC) is in progress. The AMC is expected to become operational in
autumn.
KA
Finanz, the ‘bad bank’ of Kommunalkredit is still operational but is currently
winding down its assets and has continued to downsize its balance sheet. The
bank’s operational income was not sufficient to cover the net expenses incurred
in running down the portfolio, and it therefore recorded a loss of EUR 18
million June 2013, (compared with a loss of EUR 50 million for the year to June
2012). As part of the public support for KA Finanz, Austria earmarked EUR 250
million in its 2013 budget to enable the bank to fulfil the Basel III criteria
and to maintain a tier 1 ratio of approximately 7 % of total assets. The
government decided to wind down the state-owned Kommunalkredit Austria AG, as
the attempted re-privatisation had failed due to the difficult market conditions.
The European Commission approved the plan for winding down the bank on 19 July
2013. Kommunalkredit Austria AG ceased new lending and is working out its
assets over time.
Small
and medium-sized enterprises in Austria do not generally suffer difficulties in
accessing finance but parts of the financial markets do however remain
underdeveloped. The main challenges are to improve access to small
scale equity finance (venture capital) and to foster the development of
alternatives to bank lending (in particular equity and mezzanine financing,
including crowd funding), as highlighted by the Annual Growth Survey. While small
and medium-sized enterprises are by no means unable to obtain financing, they continue
to report restrictions in terms of the availability of loans and the provision
of collateral[11].
Given this, the decreasing reliance on debt finance can be seen as a positive
development. Political actions taken in 2013 or prepared for 2014, including
better support for start-ups and some first regulatory improvements to
facilitate crowd‑funding, are helping enterprises to strengthen their equity
base but still fall short of sufficiently matching SME and mid-cap financing
needs with available sources of capital.

3.3.                
Labour market[12], education and social policies

The
Austrian labour market continues to perform well and Austria has the lowest
unemployment rate in the EU (4.9 % in 2013)[13] but
the participation rate of particular groups in the labour force is
significantly lower than the aggregate rate. The future
challenges for the Austrian labour market result from structural changes in the
economy and demographic changes, notably the ageing society, the shrinking work
force and the increasing proportion of workforce with migrant background,
calling for a better use of the labour market potential of older workers, women
and migrants. The employment rate of older workers is below the EU average due
to early retirement schemes, invalidity pensions and low statutory retirement
age. The full time equivalent[14] employment
rate of women is below EU average due to limited availability of childcare
services. People with migrant background face higher unemployment rates and
lower labour market participation. Moreover, the tax and social contribution
burden for low income earners remains a barrier for employment and the health
care sector faces challenges in terms of ensuring sustainability and access to
long term care. The socio-economic background of parents continues to have a
significant influence on the educational achievements. In higher education,
increasing numbers of enrolled students continue to put pressure on finances
and organisation and the share of students completing their programmes
successfully remains low.
Labour market
In
2013, Austria received CSRs on making better use of the labour market potential
of older workers, women and migrants by improving the employability of older
workers, improving childcare and long-term care services, recognising migrants’
qualifications and reducing the tax wedge for low-income earners. The analysis in this SWD leads to the conclusion that Austria has made some progress on measures
taken to address these recommendations (for the full
CSR assessment see the overview table in Section 4).
Austria has implemented a number of
measures to encourage people to remain in employment longer. The effective
retirement age remains considerably below the statutory retirement age however. Restrictions to early retirement and invalidity pension schemes
adopted in previous years came into force on 1 January 2014. In particular,
temporary invalidity pensions are no longer available to people below the age
of 50 and will gradually be phased out entirely. The newly introduced pension
account is designed to raise awareness of the link between individual
contributions and future benefits. The effective retirement age which stood at 58.4 years in 2012 remains
considerably below the statutory retirement age however (by 5.6 years for men
and 2.6 years for women in 2012) and there are still several routes open allowing
people to leave the labour market early, although access conditions have been
made more restrictive. The NRP sets relatively ambitious targets: the effective
retirement age is to be increased by 1.6 years between 2012 and 2018, which is
more than the expected increase in life expectancy.[15] The government plans to introduce a binding monitoring mechanism which
will trigger an adjustment to policies should there be a deviation from the
path towards the target. This mechanism could trigger further reforms, in
addition to those already being implemented. Effective use of this mechanism will
be important for achieving the targets. Incentives for staying longer in
employment will be strengthened by an increase of the incrementing factor for
pension benefits from 4.2 % to 5.1 %, which is according to the NRP
under preparation. At present, however, there are no plans to link the
statutory retirement age to life expectancy or to bring forward the
equalisation the statutory retirement age for men and women, a measure which
would also contribute to longer working lives and fiscal sustainability and would
help to address the gender gap in pensions. Thus, whilst the steps being taken
to restrict routes to an early exit from the workforce are addressing, in part,
the short-term challenge of low retirement ages, further structural measures
are needed. Measures to promote accessible and age-friendly working environments
would both support the goal of longer working lives and further promote the
participation of persons with disabilities in employment.
New
funds have been allocated to measures improving the employability of older
workers, helping people to return to work after ill health, and providing
training and opportunities for qualification in a new field of work. The specific
allocations are: EUR 300 million between 2014 and 2018 for re-training people
with reduced working capacity, for whom benefits have also been introduced,
linked to following training courses and/or returning to work; EUR 750 million
between 2012 and 2016 for measures to help older people and those with health
problems to return to or join the workforce; and according to the NRP EUR 370 million
between 2014 and 2016 for measures to improve labour market conditions for
older workers. The Fit2Work counselling infrastructure has been rolled out to
all regions. The government’s commitment to improving labour market participation
among the 50-plus age group and health-impaired people, in particular via
temporary subsidies, in-work benefits and lifelong-learning programmes, may
lead to progress in this area. There is scope to further promote accessible and
age-friendly working environments.
While financial resources have been
earmarked for measures to make it easier to combine family and working life, there
is not yet a comprehensive strategy in place and availability of care places is
still limited. In particular, financing for increased provision of
childcare, all-day school places and long-term care services has been extended
since 2011-12 and there are plans to bring in further increases over the period
to 2018. The NRP reports an increase of the care ratio for the 0-2 years old
between 2007/8 (11.8 %) and 2012/13 (20.8 %), but it is still below
the Barcelona target of 33 %. There is no coherent nationwide strategy
however, such as could be developed in cooperation with the federal states,
addressing regional differences in the demand for childcare and the compatibility
of family and full-time work. Austria continues to implement and extend
previously adopted measures relating to the gender pay gap. These are mainly
focused on raising awareness and increasing transparency. The measures announced
in the coalition agreement of last December, such as increasing the number of
women in executive posts and promoting employment in professions seen as
atypical for women, are also steps in the right direction. The measures remain
rather small-scale however compared to the problem and its causes. Austria has one of the highest proportions of women in part-time employment, care
responsibilities are unequally divided between men and women, and availability
of affordable high-quality childcare and long-term care services is limited.
Moreover, there is a high concentration of women in low-wage employment. They
are often overqualified for their jobs but face obstacles to career
development, in particular due to the limited availability of qualified part-time
work, long periods of parental leave, and barriers to obtaining management
positions (the ‘glass ceiling’).
Some measures to improve the integration
of migrants in the labour market have been adopted, and the government plans to
introduce more comprehensive measures in the future. In
order to improve the process by which migrants can obtain official recognition
of their qualifications, service centres have been set up at regional level to
guide people through the procedure, and the recognition procedure for tertiary
qualifications has been shortened from six to three months. According to the
NRP a special recognition act and improved transitions to legal (seasonal)
employment for asylum seekers are planned. Furthermore the NRP announces plans
for the development of an overall strategy to improve migrants’ access to the
labour market. Nonetheless, migrants still face difficulties on the labour
market as a result of structural obstacles, including discrimination, and show
a
very high incidence of ‘overqualification’, with a high proportion of highly-educated
immigrants from low‑income countries working in low‑skilled jobs.[16]
Education
In
2013, Austria received CSRs on improving educational achievement. These
involved improving early-childhood education and reducing the negative effects,
particularly on the learning outcomes of disadvantaged groups, of early streaming
of
pupils into different school types at the age of 10. The CSRs also highlighted
the need for improved strategic planning in higher education and more extensive
measures to reduce the drop-out rate. The analysis in this SWD leads to the
conclusion that Austria has made some progress on measures taken to address
this recommendation (for the full CSR assessment see the overview table in
Section 4).
PISA
2012 shows that Austria has improved in all categories, most of all in reading.[17]
Nevertheless, the incidence of low achievers in reading is significantly above
the EU average. In mathematics, Austria performs better, with a rate of low
achievement below the EU average, and in science the rate is close to the EU
average.[18] A
separate study from the OECD (the Survey of Adult Skills) emphasises the
strong link which continues to exist between weak reading skills and the socio-economic
background of parents, in particular in the case of migrants. While
overall the target set for reducing the rate of early school leavers has
already been met, the rate for pupils with a migrant background, who constitute
a growing percentage of the total population of pupils, was more than three
times higher than for those of non-migrant background (21.5 % compared to
6.0 % in 2012).[19] Due
to a complex governance structure here is no comprehensive national framework
for high-quality early childhood education.
A
number of reforms to the school system have been adopted in 2013 and work on
others is ongoing, as described in the NRP. Additional funding
has been provided to finance an additional compulsory year of kindergarten from
2014/15 and for teaching languages to this age group. The new measures to
promote early-childhood education, such as the creation of a framework at state
level and the introduction of a new transition phase between early-childhood
education and primary school, are further positive steps. Both measures were
announced in the coalition agreement. Austria will continue to roll out the
new middle schools programme until 2018/19 and will also increase the number of
all-day school places. The potential of new middle schools to mitigate the
negative effects of early streaming for the socially disadvantaged and to
improve achievement in education must be monitored closely. National testing of
education standards did not show better results for the New Middle School than for its predecessor “Hauptschule”. As described in the NRP, the government
adopted a comprehensive reform of teacher training and new legislation for
teachers’ working conditions and salaries in June 2013, which does not however address
early-years education and care.
High drop-out rates combined with the general need to increase
tertiary graduation rates remain a feature of Austrian higher education. 35 % of students pursuing a university degree do not
complete their studies in Austria compared to an EU-average of 31 %. According
to the NRP, in 2012, additional funding[20] lasting until 2015 was made available to address these and other shortcomings
of the higher education system. However, beyond 2015, sufficient financing is
not yet ensured. The Austrian higher education plan, which has been designed to
deal with the growing number of students and the difficulties they experience
in combining work and studies, is to be implemented on a step‑by‑step basis
between now and 2021. This plan, together with the introduction of an entry or
introductory phase at the beginning of university-level studies, has the
potential to reduce the duration of university studies and the drop-out rate. The
existing initiatives do not currently however provide a comprehensive strategic
framework to adequately address the sustainable development of higher
education. According to the NRP, Austria has continued to invest in guidance and orientation measures such as the Studienchecker,
a scheme introduced to offer more guidance and support to pupils in their final
two years of pre-university education, to help them in choosing the right
direction for their studies.[21] Combined with additional available resources, this may also help to
reduce drop-out rates.
Healthcare and long-term care
In
2013, the Council Recommendation for Austria included CSRs on the full
implementation of the healthcare reform. The purpose of these recommendations
was to make sure that the expected gains from improved efficiency do materialise.
The recommendations also included developing a financially sustainable model
for the provision of long-term care and focusing efforts on prevention,
rehabilitation and measures to allow people to continue living independently.
The analysis in this SWD leads to the conclusion that Austria has made some progress on measures taken to address this recommendation (for the full CSR
assessment see the overview table in Section 4).
Some measures were taken in 2013 to
implement the healthcare reform but they may not prove sufficient to address the
structural weaknesses in the sector. All aspects of
the implementation of the reform must be monitored, in order to assess the
extent to which it will improve the efficiency of the sector. The reform is
intended to lead to significant changes in healthcare, introducing a more
evidence-based and coordinated approach to the planning and delivery of
services, and thus allowing efficiency gains to be made. A system of electronic
health records has been introduced and targets for healthcare provision have
been agreed between the relevant actors at national and regional level. It
appears unlikely however that the reform will lead to a substantial shift from
in-patient to out-patient care, as the targets agreed to date are not
sufficiently ambitious to bring about such a change. According to the NRP, the long-term
care fund has been extended until 2016 to improve the strategic planning,
transparency, provision of care services and to extend the case and care
management. Additional EUR 650 million has been allocated to finance its
operation. The government plans to further extend its use to 2018 and allocate
further EUR 700 million. The long-term care fund provides an interim solution
for the financing of care services, but more extensive structural measures are
needed to increase the cost-effectiveness of the system. A paid care leave has
been introduced as of 2014, which facilitates the reconciliation of informal
care and work. Some additional funds have been made available for measures to
help people return to work after illness, an area of particular importance in
view of the reform of the invalidity pension taking effect as of 2014, and
strategies are being developed for improving preventive healthcare, notably the
dementia prevention strategy. The new government programme includes plans for
improving conditions for those who wish to continue living independently (i.e.
rather than in a care home), inter alia by promoting ambient assisted living
programmes and offering incentives for the construction of barrier-free
buildings.

3.4.                
Structural measures
promoting sustainable growth and competitiveness

Austria’s
solid economic growth, remarkable employment record and highly productive
workforce reflect a prosperous and competitive economy. The
economic crisis and weakening intra-euro-area trade have however led to a
significant loss of global market share. More recent export performance is
broadly in line with the performance of its EU partners and Austria benefits from tight supply chain integration with Germany and central Europe. Overall, Austria’s external balance was scarcely affected by its loss of market share, and the
current account surplus has stabilised at a moderate level. The developments in
the real effective exchange rate and the manufacturing unit labour cost do not
suggest that Austria is facing any problems relating to international cost‑competitiveness.
Nevertheless, the decline in market share may signal the need to better exploit
the economy’s innovative capacity. Despite a strong labour market, growth in private
consumption has been rather sluggish, with purchasing power suffering due to
the noticeable inflation differential vis-à-vis the euro area, primarily driven
by prices in the services sector. Promoting competition and productivity in the
services sector will be essential for increasing consumer choice and improving
the value of services, and, along with extending working lives, has been shown
to offer an effective way of generating additional economic growth over the
long and medium term (see Box 2).
In
2013, Austria received a CSR on barriers to service providers, in particular relating
to restrictions in regulated professions, competition in the railway sector,
and the powers and resources of the Federal Competition Authority. Austria has made only limited progress in addressing this CSR.
Significant
regulatory barriers continue to prevent companies and individual professionals
from offering their services in Austria. Legislation
regulating specific professions limits the forms of company that can be set up and
imposes shareholding requirements. At the same time, access to individual
professions is subject to certain professional qualifications. The combination
of these requirements, relating respectively to the legal form of companies, shareholding
and professional qualifications, creates barriers to entering the market and offering
professional services, which may significantly limit competition. It may also have
a negative effect on the mobility of European professionals wishing to set up
in business and work in Austria when their country of origin does not impose
such regulations. The assessment of the peer review on legal form, shareholding
and tariff requirements under the Services Directive[22] shows
that Austria has the strictest legal form and shareholding requirements of all
Member States for the professions assessed. Setting up interdisciplinary
services companies remains very difficult in Austria (despite surveys showing
demand for such services). The new government has agreed in principle to allow
such companies to be established, but no action has been taken to date. Differences
in regulatory requirements between individual states further complicate the
provision of services and the mobility of service providers. To date, no
justification has been provided for these measures, in terms of public interest
or consumer protection, and Austria has not provided evidence to show that
legitimate public interest objectives could not be met with a less restrictive
regulation.
Austria is
participating in the EU-wide mutual evaluation exercise on professional
qualification requirements and has updated its database of regulated
professions as a first step towards assessing the justification and
proportionality of professional qualification requirements. The Austrian Constitutional Court ruled in November 2013 that the regulation of the photography profession
was unjustified and disproportionate. A preliminary ruling by the EU Court of
Justice decided that the existing application of the demographic criteria for setting
up new pharmacies in Austria was not consistent with EU law. Aside from these
court interventions however, progress on reforms to liberalise services has
been limited to date, and services in Austria remain heavily regulated to the
detriment of service providers and consumers.
The
Austrian federal competition authority is small compared to the equivalent authorities
of other Member States of similar or smaller size and its was recommended in
2013 that the powers and resources of the competition authority should be
strengthened. The Austrian competition authority BWB has had its
powers strengthened appreciably though the competition law amendments of 05
December 2012. This also involved an important alignment to EU competition law
although the BWB has no decisional powers which remain with the cartel court. The
authority still suffers from a lack of financial and human resources, affecting
its ability to enforce competition law more rigorously and its participation in
European and international cooperation. Additional resources would also allow
the authority to invest in advocacy — to prevent, to seek to limit or to abolish
anti-competitive aspects of regulation.
It is
likely that the potentially significant economic benefits of efficient and
competitive public procurement are not being realised throughout the Austrian
public sector and in the utilities sector, where operators are also covered by
the public procurement Directives. The value of calls for tenders published
by Austrian authorities and entities under EU procurement legislation was 1.5 %
of GDP and 6.6 % of total public expenditure on works, goods and services in
2012, well below the EU averages of 3.4 % and 17.7 % respectively.
Cross-border publication of public tenders has consistently stayed among the lowest
in the EU, a situation that cannot be explained by Austria’s federal structure,
as comparisons with other Member States show. This situation creates considerable
costs for the Austrian taxpayer and for European businesses in terms of
business opportunities foregone.[23]
The low cross-border publication rate of public contracts may have various
causes. Among others it could be explained by the methods used for the
calculation of thresholds, above which a publication at the EU level is
required; or by an excessive use of exceptional provisions, lifting the
requirement for publication for the respective public procurement procedure. Austria has not taken significant measures to address this issue. The Federal
  Administrative Court  took over the powers to review procurement decisions in
January 2014, which will ensure the independence of such decisions.
The
Austrian freight and passenger railway markets would benefit from further
efforts to promote competition, as recommended in 2013. To date, however, Austria has failed to take any specific action to address this CSR.
While the use of different modes of transport in Austria is already among the
most diversified in the EU, with public passenger transport recording one of the
highest railway share in the EU, additional benefits could be generated from
the high quality infrastructure already in place by further improving service
and by shifting more traffic from road to rail. The functioning of the Single
Market is very dependent on there being competitive and accessible rail markets
in strategically located transit countries such as Austria. Increased use of
rail instead of road transport would help Austria to meet the greenhouse gas
emission target set by the Europe 2020 Strategy and to reduce pollution caused
by road traffic (see below). Under the current institutional structure of the
incumbent company, Österreichische Bundesbahnen, the same holding company
controls the company responsible for infrastructure and the railway operators.
This structure limits transparency in relation to public service obligations
and may potentially hide incidences of cross-subsidisation.[24] While
non-incumbent enterprises have already achieved a certain degree of market
penetration (17.6 % for freight and 8.7 % for passenger transport),
new entrants, both in the passenger and freight railway market, face various
barriers. These include technical equipment requirements, e.g. for the use of a
newly built section of a major trans‑European corridor (Inntal). Persistent
anti-competitive practices on the part of the incumbent company have forced competitors
to resort to costly administrative procedures (e.g. complaints to the regulatory
authority) and litigation. The incumbent company is currently awarded a public
service contract covering about 90 %[25]
of the territory and allegedly also including high-speed services, which de
facto eliminates the possibility for competition on this part of the market. The
potential for significant savings of public funds through competitive awarding
of parts of the transport volume covered by the public service contract
directly awarded to ÖBB, as allowed for in this contract, remains unutilised[26].
Despite
the relatively high levels of public R&D funding (Austria ranks fifth in the EU‑28), the Austrian research and innovation system is underperforming.[27] Public
R&D investment often fails to translate into research and innovation
outputs and related economic effects due to the relatively low tertiary
education attainment rate (27 % in 2013 compared to the EU average of 36.6 %),
structural factors, and the relatively low level of cooperation between publicly
funded research and business (public expenditure R&D co-financed by private
enterprises  represents only 0.042 % of Austria’s GDP compared to a EU
average of 0.052 %). While the intensity of R&D undertaken by
businesses is above EU average, the growth of innovative firms in their
start-up phase is below EU average (4 % of employees in Austria were employed in fast-growing firms in 2010, compared to a EU average of 6 %). Austria has addressed the underperformance of its research and innovation system in a research,
technological development and innovation strategy published in 2011. In 2014, Austria needs to present a national or regional research and innovation strategy for smart
specialisation in order to support small and medium-sized enterprises. The
existence of such a strategy and its coordination between national and regional
levels is a pre-requisite for receiving financing from the European Investment
and Structural Funds during the 2014-20 programming period. Promoting
investment by private business in research and innovation technology as well as
in knowledge-intensive sectors and technology transfer will be amongst the main
objectives of the smart specialisation strategy.
Start-up
conditions for the simplest legal forms of companies are good, whereas the
administrative burden for establishing more complex legal forms could be
further reduced. In 2013, Austria took steps to improve
start-up conditions for firms, and the recent reform of the limited liability
company as a legal form has lightened the burden for those choosing this form
of company. The reform reduces the minimum starting capital required and reduces
costs incurred for the services of notaries and lawyers. The requirement that the
application be submitted in paper form has also been dropped. The reform
therefore goes some way to aligning the conditions for limited liability
companies with those for single‑person companies. The reform has increased the
rate at which limited liability companies are being created, but has also led
to adverse effects, as established firms have changed their legal form purely
so as to reduce their equity base and thus reduce their tax liability. An
amendment passed in 2014 tackles these adverse effects while leaving the more
favourable conditions created for the first ten business years of companies of this
legal form unchanged. The limited liability company reform represents substantial
progress in this area, but it remains to be seen whether the targets for the
time taken and costs incurred in setting up a new company of this form can be
fully met.
Active
regional cooperation and appropriate regulatory incentives remain critical for
the development and operation of the electricity and gas networks. The
implicit flow‑based capacity allocation procedure designed to limit the negative
impact of unplanned flows in the central and eastern European region had not
been implemented by the end of 2013 as planned. The high-tension 380-kV ring in
 Austria is yet to be completed and cross‑border capacities at Austria’s borders with Italy, Slovenia, Switzerland and Germany require improvement. A further
assessment would be needed to determine whether the new requirement for
electricity suppliers to provide a certificate of origin for all sources of
electricity will restrict the import of supplies from other Member States. The
development of gas networks must also be closely coordinated with neighbouring
countries. In line with Regulation (EU) No 347/2013 on guidelines for
trans-European energy infrastructure, Austria has designated one national
competent authority responsible for managing and coordinating the process for
granting permits for projects of common interest. For these projects at least, it
is necessary to provide incentives to transmission system operators so as to encourage
investment and to further streamline the process for granting permits. 
Austria is
making good progress in promoting use of renewable energy. Nonetheless,
considerable efforts will be needed to achieve the aim of stabilising final
energy consumption, so that energy consumption in 2020 is equal to the 2005
level.
Energy from renewable sources represented 32.1 % of Austria’s energy consumption in 2012, and the country is on track for meeting its 2020 target of 34 %.
At the same time, there is still significant potential for energy saving in buildings
and transport, in energy supply networks, in the public sector, in the
manufacture of products and in industrial processes (i.e. in the activities of SMEs
and in industry). The regions will play a major role in ensuring that the
planned measures are implemented correctly and without unnecessary delay, and that
they achieve clear and ambitious targets. A task-sharing approach will therefore
be critical to the success of the measures. The draft Energy Efficiency Act  is
expected to be adopted in 2014.
Austria
recognises the impact of resource efficiency on business competitiveness. Austria generates more economic wealth relative to materials used than the EU average. Its economy
is however dependent on imports of raw materials, partly for domestic
consumption but also for the manufacture of exports. Assuming a baseline annual
growth rate in resource productivity of 1.9 % (the average improvement
between 1995 and 2010), additional efforts would be needed to reach the 2020
target, set in the Austrian resource efficiency action plan approved in 2012, of
a 50 % increase in resource productivity compared to 2008.
Air
pollution and the negative impacts of climate change have significant effects
on the environment and on health and have a high economic cost to society[28]. Eight
floods caused damages totalling EUR 5300[29]
million between 2002 and 2013. Measures to reduce particulate matter and
nitrogen oxide emissions from road transport are of particular relevance to
public health. Measures to manage the effects of climate change and ecosystem
services, such as the management and prevention of floods in areas with
conditions allowing implementation of cost-effective nature-based solutions
could substantially improve the capacity for prevention and mitigation of
natural disasters related to climate change. In 2013, important steps were
taken to address the challenge of meeting the greenhouse gas emission
targets and closing the currently projected gap of 7 percentage points. Amendments
to the Climate Protection Act and the Environmental Law Adjustment Act for the
period from 2013 to 2020 brought in legally binding measures, such as greenhouse
gas emission targets per sector, as well as funding opportunities for waste,
energy, industry, fluorinated gases, buildings, agriculture, and transport. In
addition, a new scheme awarding subsidies for the installation of photovoltaic systems
is expected to lead to a more rapid expansion of photovoltaic generation
capacity.
Box 2: Potential impact of structural reforms on
growth – a benchmarking exercise 
Structural reforms are crucial for
boosting growth. It is therefore important to know the potential
benefits of these reforms. Benefits of structural reforms can be assessed with
the help of economic models. The Commission uses its QUEST model to determine
how structural reforms in a given Member State would affect growth if the
Member State narrowed its gap vis-à-vis the average of the three
best EU performers on key indicators such as the
degree of competition, labour market participation, the benefit
replacement rate or the implicit consumption tax rate. Improvements on these
indicators could raise GDP by about 4½ % in a
10-year period. Some of the reforms could have an effect even within a
relatively short time horizon. The model simulations corroborate the analysis
of Section 3.3 and Section 3.6; the largest gains would likely stem from decreasing the mark-ups on final goods and increasing the
participation rate of women and the elderly. The simulations
support the priority placed by the authorities on increasing working lives and
should encourage them to further reform the pension system and promote
competition in the services sector.
Table:
Structural indicators, targets and potential GDP effects[30]
Source: Commission services. Note: In
these simulations it is assumed that all member states undertake reforms which
close their structural gaps by half. The table shows the contribution of each
reform to total GDP after five and ten years. If the country is above the
benchmark for a given indicator, we do not simulate the impact of reform
measures in that area; however, the Member State in question can still benefit
from measures taken by other Member States.[31] * The long run effect of increasing the share of high-skilled
population would be 2.7% of GDP and of decreasing the share of low-skilled
would be 2.6%.** EU average is set as the benchmark. 

3.5.                
Modernisation of public administration

Austria
performs relatively strongly in the area of public administration. Its systems
are effective but there is scope for improvement. Austria has maintained its ranking among the top ten countries in the area of public
administration, as measured by the World Bank government effectiveness
indicator, and its score is above the EU average. Its ranking has however
fallen somewhat over 2011 and 2012. A fragmented and inefficient division of responsibilities
between federal, state and local government has led to a multiplicity of
regulatory regimes, delays in the transposition of EU directives, an unnecessary
burden on business and market fragmentation. A complex governance structure is
also affecting the performance of Austria’s innovation system (see Section 3.4).
Measures
are currently being implemented to reduce the administrative burden for businesses
and individuals. Following the conclusion of a programme (2007-12)
to reduce the administrative burden for businesses, the working programme of
the new federal government includes plans to set up an agency responsible for
reducing the administrative burden and simplifying processes. The purpose of
the agency would be to develop and promote measures to reduce ‘red tape’ for
businesses and individuals and to reduce costs for public administration
offices. The improvement of e-government services continues to be a priority,
and steps are being taken to improve the facilities for online registration of
businesses. The system is expected to be fully operational by 2015. In order to
achieve a further reduction of administrative costs for businesses of around EUR
200 million, an online business service portal is being implemented in stages.
This is designed to function as a single point of contact for a wide range of
services (e.g. tax declarations, social security contributions and public
procurement procedures). The second stage was implemented in 2013.
Austria has
put in place a network of nine regional points of single contact to assist
companies providing services in Austria. Austria has
well-developed e-government systems and the points of single contact could
benefit from being linked with other business-related e-services. The
accessibility to portals for users in other Member States needs to be improved,
inter alia by making portals available in other languages, increasing the
number of services available to users in other Member States and improving the
usability of the portals.
Since
January 2013, an impact assessment system for new regulation has been introduced
integrating nine different tests for different types of impacts. The
inclusion of a small and medium-sized enterprise test in the system is a
positive feature. The main weakness of the system would appear to be a
conceptual one, in that it does not allow comparisons to be made between policy
options other than the envisaged legislative proposal. The quality of the
resulting analysis and the transparency of the methods used to quantify social
costs and benefits will need to be evaluated in detail when the first results
from the new system are made available.

4.        
Conclusions

Austria’s has
coped well with the difficult economic environment of recent years. Several
challenges of a medium- to long-term nature will require ongoing attention and
appropriate policies. Economic growth
has remained positive, employment and income growth have remained robust and
financing conditions continue to be relatively favourable. Nonetheless, the
labour market is failing to benefit from the full potential of certain parts of
the workforce (in particular people with migrant background, women and older
workers), while the services sector may be suffering from a suboptimal degree
of competition, as progress in removing excessive barriers to
entering the market has been limited. Education outcomes are still
below average in reading and socio economic background continues to have a
significant influence on attainment. There is scope for further enhancing the
long-term sustainability of the pension and health systems. The financial system
meanwhile is still encumbered by the sizeable volume of impaired assets held by
a number of distressed banks. The above issues were all addressed in
the 2013 CSRs for Austria.
The analysis in
this Staff Working Document leads to the conclusion that Austria has made some progress in addressing the 2013 country-specific recommendations. Austria has made some progress in promoting longer working lives, improving education
achievement and improving the utilisation of the labour market potential of women,
people with a migrant background and older workers. Some progress has been made
in implementing healthcare reform and the restructuring of the banking sector
has continued. Most of the reforms, in particular in education and healthcare,
will have an impact only in the medium to long term. Effective implementation
and monitoring therefore remain critical.
Challenges
identified in July 2013 and reiterated in the Annual Growth Survey remain valid
while the medium-term budgetary strategy set up by the Programme should be
reinforced in the years 2014-2015. The budgetary projections
including in the Programme point to risk of non-compliance with the rules of
the preventive arm of the SGP. To safeguard its long-term growth
potential and fiscal sustainability in spite of an ageing population, Austria needs to maintain or even increase the momentum of reform, in particular as regards
the labour market, pensions, healthcare and education. Greater efforts to
promote competition, in particular in the services sector, would improve the
business environment whilst decisive steps to complete a transparent restructuring
of nationalised banks would increase the stability of the financial system.
The national
reform programme and the stability programme submitted by Austria broadly
address most, but not all challenges identified in last year's staff working
document. The NRP announces Austria's policy plans in the areas of the
labour market, education, healthcare, long term care and in ensuring further
progress towards the EU 2020 targets. The Stability Programme confirms the
objective of achieving the medium-term objective by 2016 one year behind that
sets by last year's recommendation and plans a lower structural adjustment
towards the MTO with respect to the requirements of the preventive arm of the
Stability and Growth Pact. The stability program spells out the concrete steps
for advancing the restructuring of the banking sector. In many cases, however, the
perspective is backward looking or focused on the short term and the description
of the measures does not reveal an underlying comprehensive strategic framework.

Overview table[32]

 2013 commitments || Summary assessment 
 Country-specific recommendations (CSRs) 
 CSR 1: Implement the budget for the year 2013 as envisaged so as to correct the excessive deficit in a sustainable manner and achieve the average annual structural adjustment effort specified in the Council Recommendation under the Excessive Deficit Procedure. After correction of the excessive deficit, pursue the structural adjustment effort at an appropriate pace so as to reach the medium-term objective by 2015. Streamline fiscal relations between layers of government, for example simplifying the organisational setting and aligning spending and funding responsibilities. || Austria has made some progress in addressing CSR 1: ·         Austria has fully implemented the recommendation for corrective the excessive deficit in a sustainable manner; ·         No progress has been made towards pursuing a structural adjustment consistent with the requirement of the pact. The achievement of the MTO is still envisaged in 2016. ·         Some progress has been made to streamline fiscal relations among layers of government;   
 CSR 2: Bring forward the harmonisation of pensionable age for men and women, increasing the effective retirement age by aligning retirement age or pension benefits to changes in life expectancy;   implement and monitor the recent reforms restricting access to early retirement and further improve older workers’ employability in order to raise the effective retirement age and the employment rate of older workers || Austria has made some progress in addressing CSR 2: ·         No progress has been made towards equalising the retirement age for women’s and men. ·         Austria has made substantial progress in restricting access to early retirement, improving the process of reintegration into the workforce and offering opportunities for re-training. Some progress has also been made in improving older workers’ employability, in particular by facilitating reintegration into the workforce and offering opportunities for re-training. 
       CSR 3: Take new measures to increase the labour market participation of women, namely by further improving child care and long-term care services and address the high gender pay and pension gaps.     Use the labour market potential of people with a migrant background by continuing to improve the recognition of their qualifications and their education outcomes.         Reduce the effective tax and social security burden on labour for low-income earners in a budget-neutral way by relying more on other sources of taxation less detrimental to growth, such as recurrent property taxes. || Austria has made some progress in addressing CSR 3: ·         Some progress has been made in improving childcare and long-term care services while limited progress has been made to address the high gender pay and pension gaps. ·         Some progress has been made towards better utilisation of the labour market potential of people with a migrant background. Advisory services offering guidance on the recognition process have been improved but further simplification of the whole recognition process as well as improvement of the general labour market conditions for people with a migrant background is needed. ·         So far, only limited progress can be reported in terms of reducing the tax burden for low-income earners and shifting it to recurrent property taxes. 
 CSR 4:   Effectively implement the recent reforms of the healthcare system to make sure that expected cost efficiency gains materialise.   Develop a financially sustainable model for the provision of long-term care and put a stronger focus on prevention, rehabilitation and independent living || Austria has made some progress in addressing CSR 4: ·         Some progress has been made in the implementation of healthcare reform, although important challenges are yet to be addressed, in particular reducing the level of in-patient treatment and ensuring the long-term sustainability of healthcare services. Some progress has been made in improving the cost-effectiveness of public spending on healthcare. ·         Some progress has been made to ensure the provision of long-term care in the medium term but additional effort to improve the sustainability of the sector in the long term is needed. 
 CSR 5:   Improve educational outcomes, in particular of disadvantaged young people, including by enhancing early childhood education and reducing the negative effects of early tracking.               Further improve strategic planning in higher education and enhance measures to reduce drop-outs.   || Austria has made some progress in addressing CSR 5: ·         Some progress has been made in addressing the CSR on education. Austria has taken several measures. Educational achievement has improved slightly, but socio-economic background continues to have a significant influence and insufficient emphasis is put on preventing early school leaving at an early stage. A nationwide strategic approach for high-quality early-childhood education is needed. ·         Some progress can be reported in the area of higher education. The effective implementation of the higher education plan in operation until 2021 requires close monitoring. This plan can be considered as an instrument for improving coordination but it does not provide a comprehensive strategic framework for the development of higher education. 
   CSR 6:   Further strengthen the powers and resources of the federal competition authority and monitor the implementation of the competition law reform.   Remove excessive barriers for service providers. This includes reviewing whether existing restrictions on entry and conduct in regulated professions are justified by general interest       and fostering competition notably in the railway sector.   || Austria has made limited progress in addressing CSR 6 ·         Limited progress has been made in strengthening the powers of the competition authority, as it remains understaffed. ·         Limited progress has been made in removing excessive barriers preventing service providers from entering the market. No general review exercise has taken place. Austria is however taking part in a mapping of regulated professions being carried out by the Commission (a legal obligation under the revised Professional Qualifications Directive). ·         Austria has made no progress in promoting competition in the railway sector. No measures have been taken. 
   CSR 7:   With a view to maintaining financial stability continue to closely oversee the nationalised and partly nationalised banks and speed up their restructuring. || Austria has made some progress in addressing CSR 7: ·         Some progress has been made as regards the restructuring of nationalised and partially nationalised state-owned banks in 2013, but the overall situation of these banks (especially of Hypo Alpe Adria) remains difficult. 
 Europe 2020 (national targets and progress) 
 Policy field target || Progress achieved 
 R&D target: 3.76 % of GDP (two thirds from the private sector, one third from the public sector). || After a strong increase in R&D intensity between 2000 (1.93 %) and 2008 (2.67 %) of nearly 0.1 pps per year, progress in increasing R&D intensity slowed after 2008. R&D intensity reached 2.80 % in 2010, 2.77 % in 2011 and 2.84 % in 2012 (of which 1.95 % resulted from private-sector spending and 0.73 % from public-sector spending). While, according to Eurostat data, there was a small increase in private R&D spending as a percentage of GDP over the period 2010-12, public spending stagnated. This demonstrates that Austria is currently not on track to reach its ambitious 3.76 % spending target. Without additional efforts and increased progress, the target will not be reached. It should also be noted that the revision of the European System National Accounts (ESA 2010), which will be implemented in autumn 2014, is expected to lead to the calculation of a higher value of GDP and a corresponding decline in R&D intensity. 
 Employment rate ( %): || In 2013 the overall employment rate was 75.5% compared to 75.6% in 2012 and 75.2% in 2011 and well above the EU-28 level of 68.3% in 2013. To reach the national target of an employment rate between 77% and 78% by 2020, the current employment rate would need to rise between 1.5 and 2.5pp. 
 Early school leaving ( %): || Austria is already outperforming the Europe 2020 and its national target for reducing early school leaving (2006: 9.8 %, 2012: 7.6 %, 2013: 7.3% ), but efforts to reduce the early school leaving rate amongst people with a migrant background must be maintained.   
 Tertiary education attainment ( %): || Austria is making progress in this area (2006: 21.2 %, 2011: 23.8 %, 2012: 26.3 %, 2013: 27.3%). If qualifications classified as level 4a in the international standard classification of education are also included, the rate of  tertiary education attainment was 36.6 % in 2012. Nevertheless increasing the overall percentage of the population to have completed tertiary education remains a challenge.   
 Reduction of people in or at risk of poverty (in number of persons): -235 000 (compared with 2008) || The number of people at risk of poverty or social exclusion has fallen by 125 000 (EU SILC 2011), which implies that Austria has already reached just over half of the targeted reduction of 235 000 by 2020. NB: EU SILC 2012 data show a significant increase in the number of people at risk of poverty or social exclusion but the figures are not comparable due to a break in series. 
 Energy efficiency target: 20 % By 2020: primary consumption of 31.5 million tonnes of oil equivalent and final energy consumption of 26.3 million tonnes of oil equivalent || The national legislation transposing the energy efficiency directive has not yet been adopted. 
 National greenhouse gas emission target: -16 % in 2020 compared to 2005 (in sectors not included in the Emissions Trading Scheme). || Change in greenhouse gas emissions from sectors not included in the Emissions Trading Scheme between 2005 and 2012: -13 %. According to the latest national projections submitted to the Commission, and taking into account existing measures, it is expected that the target will be missed: -9 % in 2020 as compared with 2005 (i.e. a projected shortfall of 7 pp). 
 2020 renewable energy target: 34 % Share of renewable energy in all modes of transport: 10 % || Renewable energy sources contributed 32.1 % of Austria’s total energy consumption in 2012. Austria is on track for meeting the 2020 renewable energy target. The proportion of renewable energy used in transport was 7.72 %. 

Annex

Standard Tables
Table I. Macro-economic indicators
Table II. Comparison
of macroeconomic developments and forecasts
Table III.
Composition of the budgetary adjustment
Table IV. Debt
dynamics
 

Table V.
Sustainability indicators
Table VI. Taxation
indicators
Table VII. Financial
market indicators
Table VIII. Labour
market and social indicators
Table
IX. Product market performance and policy indicators
Table X. Green
Growth
List of indicators used in Box 2 on the potential impact on growth of structural reforms
Final
goods sector mark-ups: Price-cost margin, i.e. the difference
between the selling price of a good or service and its cost. Final goods
mark-ups are proxied by the mark-ups in selected services sectors (transport
and storage, post and telecommunications, electricity, gas and water supply,
hotels and restaurants and financial intermediation but excluding real estate
and renting of machinery and equipment and other business activities[33]). 
Source: Commission services estimation
using the methodology of Roeger, W. (1995). "Can imperfect
Competition explain the Difference between primal and dual Productivity?" Journal
of Political Economy Vol. 103(2) pp. 316-30, based on
EUKLEMS 1996-2007 data. 
Entry
costs:
Cost of starting a business in the intermediate sector as a share of income per
capita. The intermediate sector is proxied by the manufacturing sector in the
model. 
Source: World Bank, Doing Business
Database. www.doingbusiness.org. 2012 data.
Implicit
consumption tax rate: Defined as total taxes on consumption
over the value of private consumption. In the simulations it is used as a proxy
for shifting taxation away from labour to indirect taxes. The implicit
consumption tax-rates are increased (halving the gap vis-à-vis the best
performers) while labour tax-rates are reduced so that the combined impact is
ex-ante budgetary neutral.
Source: European Commission, Taxation
trends in the European Union, 2013 edition, Luxembourg, 2013. 2011 data.
Shares
of high-skilled and low-skilled: The share of high skilled
workers is increased, the share of low-skilled workers is reduced (halving the
gap vis-à-vis the best performers). Low-skilled correspond to ISCED 0-2
categories; high-skilled correspond to scientists (in mathematics and
computing, engineering, manufacturing and construction). The remainder is
medium-skilled. 
Source: EUROSTAT. 2012 data or latest
available. 
Female
non-participation rate: Share of women of working age not in
paid work and not looking for paid work in total female working-age population
Source: EUROSTAT. 2012 data or latest
available.
Low-skilled
male non-participation rates: Share of low-skilled men of
working age not in paid work and not looking for paid work in total male
working-age population
Source: EUROSTAT. 2012 data or latest
available.
Elderly
non-participation rates (55‑64 years): Share of the
population aged 55‑64 years not in paid work and not looking for paid work in
total population aged 55‑64 years.
Source: EUROSTAT. 2012 data or latest
available.
ALMP:
Active Labour Market Policy expenditures as a share of GDP over the share of
unemployed in the population. 
Source: EUROSTAT. 2011 data or latest
available.
Benefit
replacement rate:  Share of a worker's pre-unemployment
income that is paid out by the unemployment insurance scheme. Average of net
replacement rates over 60 months of unemployment. 
Source:
OECD, Benefits and Wages Statistics. www.oecd.org/els/benefitsandwagesstatistics.htm.2012
data.
[1]               COM(2013) 800 final.
[2]               COM(2013) 790 final.
[3] Apart from the 16 Member States identified in the Alert Mechanism Report, Ireland was also covered by an in-depth review following the conclusion by the Council that Ireland should be fully integrated into the normal surveillance framework after the
successful completion of its financial assistance programme.
[4] The Austrian Institute of Economic Research was founded in 1927. It
is a non-profit association under Austrian law. The 16‑member Governing Board
and the 34‑member Supervisory Council comprise representatives of various NGOs,
financial institutions, including the Austrian National Bank, businesses,
business associations and academia. Representatives of the central and regional
government occupy one and two seats respectively on the Governing Board and two
seats each on the Supervisory Council.
[5]               See Table V. The medium-term sustainability gap (S1)
indicator shows the upfront adjustment effort required, in terms of a steady
improvement in the structural primary balance to be introduced until 2020, and
then sustained for a decade, to bring debt ratios back to 60% of GDP in 2030,
including financing for any additional expenditure until the target date,
arising from an ageing population. The following thresholds were used to assess
the scale of the sustainability challenge: (i) if the S1 value is less than
zero, the country is assigned low risk; (ii) if a structural adjustment in the
primary balance of up to 0.5 p.p. of GDP per year until 2020 after the last
year covered by the autumn 2013 forecast (year 2015) is required(indicating an
cumulated adjustment of 2.5 pp.), it is assigned medium risk; and, (iii) if it is greater than 2.5 (meaning
a structural adjustment of more than 0.5 p.p. of GDP per year is necessary), it
is assigned high risk.
[6]               See Table V. The long-term sustainability gap (S2)
indicator shows the immediate and permanent adjustment required to satisfy an
inter-temporal budgetary constraint, including the costs of ageing. The S2
indicator has two components: i) the initial budgetary position (IBP) which
gives the gap to the debt stabilising primary balance; and ii) the additional
adjustment required due to the costs of ageing. The main assumption used in the
derivation of S2 is that in an infinite horizon, the growth in the debt ratio
is bounded by the interest rate differential (i.e. the difference between the
nominal interest and the real growth rates); thereby not necessarily implying
that the debt ratio will fall below the EU Treaty 60% debt threshold. The following thresholds for the S2
indicator were used: (i) if the value of S2 is lower than 2, the country is
assigned low risk; (ii) if it is between 2 and 6, it is assigned medium risk;
and, (iii) if it is greater than 6, it is assigned high risk.
[7]               Ageing costs comprise long-term projections of public
age-related expenditure on pension, health care, long-term care, education and
unemployment benefits. See the 2012 Ageing Report for details.
[8] The low-wage trap is defined as the share of
additional earnings arising from an increase in work productivity/working hours
which are wiped out by the relative increase in taxes and withdrawn of benefits.
Low-wage trap is particularly high in Austria for principal earner at 100% of
average wage and second-earner moving from 33% to 67% of average wage.
[9] The payment of the entire principal of the loan or the principal
and the interest is due at the end of the loan contract.
[10] The decision to create a company through which to carry out the
wind-up was taken on 14 March 2014.
[11] Source: Austrian National Bank (December 2013): Financial Stability
Report 26
[12] For further details, see the 2014 Joint
Employment Report, COM(2013)801, which includes a scoreboard of key employment
and social indicators.
[13] Source: Eurostat.
[14] The computation of the full‑time equivalent employment rate is designed
to take account of the proportion of women working part-time.
[15] Based on demographic assumptions included in the 2012 Ageing
Report.
[16] OECD (2012): The labour market integration of immigrants and
their children in Austria.
[17] PISA 2009‑12 comparison: reading 470/490, science 494/506;
mathematics 496/506.
[18] Pisa 2012 comparison AT/EU average: reading 19.5 %/17.8 %,
mathematics 18.7 %/22.1 %, science 15.8 %/16.6 %.
[19] Source: Eurostat 2012.
[20]As announced in the Euro Plus Pact, more funding has been allocated
to universities. Annually, an additional EUR 80 million was allocated to universities
and universities of applied sciences (Fachhochschulen) for the period
2012 to 2014. As earlier agreed in the 2012-16
Consolidation package, an additional EUR 250 million was made available in
2013.
[21] Studienchecker started as a pilot project in 2008. It has
been rolled out in 397 schools to date, with the aim of  reaching 678 schools during
the course of 2014-15.
[22] http://ec.europa.eu/internal_market/services/services-dir/implementation/2012-communication/index_en.htm.
[23] Empirical studies (http://ec.europa.eu/internal_market/publicprocurement/docs/final_report_en.pdf
(p. 111, articles 7.29 and 7.30), http://ec.europa.eu/economy_finance/publications/publication16259_en.pdf
(p. 7), http://ec.europa.eu/internal_market/publicprocurement/docs/modernising_rules/er853_1_en.pdf
(p. xviii)) suggest that competitive tendering in public procurement could
generate savings in the order of 5 % of the contract value. In 2011 this would
have translated into savings of just under 0.1 % of GDP.
[24] Cross-subsidisation is in breach of EU law (see Regulation (EC) No
1370/2007 on public passenger transport services by rail and by road; Directive
2012/34/EU establishing a single European railway area requires account
separation between infrastructure managers and railway operators).
[25] AT did not report to the Commission the passenger - km under PSO,
this figure is an estimate by Commission services.
[26] The impact assessment accompanying the Commission proposal on the
4th railway package (SWD (2013)10, http://ec.europa.eu/commission_2010-2014/kallas/headlines/news/2013/01/doc/swd(2013)-10-part1.pdf,
  box 7) provides evidence on the savings of public funds by competitive
tendering.
[27] Austria ranked 11th among EU Member States in the Innovation Output
Indicator in 2013 (COM (2013) 624 of 13.09.2013)
[28] E.g. 5 500 premature deaths (in 2010), 1.8 million workdays lost
each year due to sickness related to air pollution, with associated costs for
employers, healthcare, and agriculture (crop losses).
[29] Risk and Policy Analysts, Study on Economic and Social Benefits of
Environmental Protection and Resource Efficiency related to the European
Semester, DG ENV, February 2014, http://ec.europa.eu/environment/integration/green_semester/pdf/RPA %20Final %20Report-annexes.pdf
[30] Final goods sector
mark-ups is the difference between the selling price of a good/service and its
cost. Entry cost refers to the cost of starting a business in the intermediate
sector. The implicit consumption tax rate is a proxy for shifting taxation away
from labour to indirect taxes. The benefit replacement rate is the % of a worker's pre-unemployment income that is
paid out by the unemployment scheme. For a detailed explanation of indicators
see Annex.
[31] For a detailed explanation
of the transmission mechanisms of the reform scenarios see: European Commission
(2013), "The growth impact of structural reforms", Chapter 2 in
QREANo. 4. December 2013. Brussels; http://ec.europa.eu/economy_finance/publications/qr_euro_area/2013/pdf/qrea4_section_2_en.pdf
[32] The following categories are used to assess progress in
implementing the 2013 country-specific  recommendations: 
No progress: The Member State has neither announced nor adopted any measures to
address the CSR. This category also applies if a Member State has commissioned
a study group to evaluate possible measures. 
Limited progress: The Member State has announced some measures to address the CSR,
but these measures appear insufficient and/or their adoption/implementation is
at risk. 
Some progress: The Member State has announced or adopted measures to address the
CSR. These measures are promising, but not all of them have been implemented
yet and implementation is not certain in all cases.
Substantial progress: The Member State has adopted measures, most of which have been
implemented. These measures go a long way in addressing the CSR. 
Fully addressed: The Member State has adopted and implemented measures that address
the CSR appropriately.
[33] The real estate sector is excluded because of statistical difficulties
of estimating a mark-up in this sector. The sector renting of machinery and equipment
and other business activities is conceptually part of intermediate goods
sector.