Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of Austria and delivering a Council opinion on the 2016 stability programme of Austria
Date: 2016-05-18
Institutions: European Commission, Secretariat-General
Subjects: Austria, administrative formalities, budget deficit, budgetary equilibrium, economic policy, education, health care system, labour market, pension scheme, stability programme

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   EUROPEAN COMMISSION  Brussels, 18.5.2016  COM(2016) 340 final   Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of Austria  and delivering a Council opinion on the 2016 stability programme of Austria  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2016 national reform programme of Austria 

and delivering a Council opinion on the 2016 stability programme of Austria 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 
Having regard to the recommendation of the European Commission2, 
Having regard to the resolutions of the European Parliament3, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On  26  November  2015,  the  Commission  adopted  the  Annual  Growth  Survey4, 
marking  the  start  of  the  2016  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  17-18  March  2016.  On  26  November  2015,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report5,  in  which  it 
identified Austria as one of the Member States for which an in-depth review would 
be carried out. On the same day, the Commission also adopted a recommendation for 
a  Council  recommendation  on  the  economic  policy  of  the  euro  area6.  This 
recommendation was endorsed by the European Council on 18-19 February 2016 and 
adopted by the Council on 8 March 2016. As a country whose currency is the euro 
and  in  view  of  the  close  interlinkages  between  the  economies  of  the economic  and 

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OJ L 209, 2.8.1997, p. 1. 
COM(2016) 340 final. 
P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060. 
COM(2015) 690 final. 
COM(2015) 691 final. 
COM(2015) 692 final. 

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(2) 

(3) 

(4) 

(5) 

monetary  union,  Austria  should  ensure  the  full  and  timely  implementation  of  the 
recommendation. 
The 2016 country report for Austria7 was published on 26 February 2016. It assessed 
Austria’s  progress  in  addressing  the  country-specific  recommendations  adopted  by 
the Council on 14 July 2015 and Austria's progress towards its national Europe 2020 
targets. It also included the in-depth review under Article 5 of Regulation (EU) No 
1176/2011. On 8 March 2016, the Commission presented the results of the in-depth 
review.  8  The  Commission’s  analysis  leads  it  to  conclude  that  Austria  is  not 
experiencing macroeconomic imbalances.  

On 26 April 2016, Austria submitted its 2016 national reform programme and on 27 
April  2016  it  submitted  its  2016  stability  programme.  To  take  account  of  their 
interlinkages, the two programmes have been assessed at the same time. 

recommendations  have  been  addressed 

Relevant  country-specific 
the 
programming  of  the  European  Structural  and  Investment  Funds  for  the  2014-2020 
period.  As  foreseen  in  Article  23  of  Regulation  (EU)  No  1303/2013,  where  it  is 
necessary  to  support  the  implementation  of  relevant  Council  recommendations,  the 
Commission may request a Member State to review and propose amendments to its 
Partnership  Agreement  and  relevant  programmes.  The  Commission  has  provided 
further  details  on  how  it  would  make  use  of  this  provision  in  guidelines  on  the 
application  of  the  measures  linking  effectiveness  of  the  European  Structural  and 
Investment Funds to sound economic governance9. 

in 

The  stability  programme  indicates  that  the  budgetary  impact  of  the  exceptional 
inflow  of  refugees  is  significant  and  provides  adequate  evidence  of  the  scope  and 
nature of these additional budgetary costs. According to the Commission, the eligible 
additional expenditure amounted to 0.09% of GDP in 2015 and is currently estimated 
at 0.26% of GDP in 2016. These amounts represent an upward revision with respect 
to  the  estimates  provided  by  the  2016  draft  budgetary  plan,  which  expected 
additional  expenditure  at  around  0.08 %  of  GDP  and  0.16 %  of  GDP  in  2015  and 
2016  respectively.  The  provisions  defined  in  Article  5(1)  and  Article  6(3)  of 
Regulation  (EC)  No  1466/97  allow  catering  for  this  additional  expenditure,  in  that 
the inflow of refugees is an exceptional event, its impact on Austria`s public finances 
is  significant  and  sustainability  would  not  be  compromised  by  allowing  for  a 
deviation from the adjustment path towards the medium-term budgetary objective. In 
2015, as Austria was at its medium-term budgetary objective, it did not make use of 
the possible temporary deviation. However, in order to ensure that Austria is allowed 
the  same  temporary  deviation  as  countries  not  yet  at  their  medium-term  budgetary 
objective,  Austria  will  be  allowed  to  deviate  from  its  medium-term  budgetary 
objective  in  2016  and  2017  by  the amount  considered  eligible  for  2015.  Regarding 
possible  additional  deviation  in  2016,  a  final  assessment,  including  on  the  eligible 
amounts, will be made in spring 2017 on the basis of observed data as provided by 
the Austrian authorities.  

(6) 

Austria  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact  and 
subject to the transitional debt rule. In its 2016 stability programme, the government 
expects that the headline deficit will deteriorate to 1.6 % of GDP in 2016 and then 

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SWD(2016) 88 final. 
COM(2016) 95 final. 
COM(2014) 494 final. 

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gradually improve to 0.4 % of GDP in 2020. The medium-term budgetary objective 
—  a  structural  deficit  of  0.45  %  of  GDP  until  2016  and  revised  to  become  a 
structural deficit of 0.5% of GDP as from 2017 — is foreseen to be met from 2018 
onwards.  However,  based  on  the  recalculated  structural  balance  ,  the  medium-term 
budgetary  objective  would  only  be  met  as  from  2019.  According  to  the  stability 
programme, the government debt-to-GDP ratio is expected to have peaked at 86.2 % 
in  2015  and  to  gradually  decline  to  76.6  %  in  2020.  The  macroeconomic  scenario 
underpinning  these  budgetary  projections  is  plausible.  At  the  same  time,  the 
measures needed to support the planned deficit targets from 2017 onwards have not 
been sufficiently specified. Based on the Commission 2016 spring forecast, there is a 
risk of some deviation in 2016. However, if the additional impact of the exceptional 
inflow of refugees currently projected for 2016 is also excluded from the assessment, 
Austria would be expected to comply with the provisions of the Stability and Growth 
Pact in 2016. Under unchanged policies, there is a risk of a significant deviation from 
the  recommended  adjustment  in  2017.  However,  the  projected  deviation  in  2017 
would no longer be significant after considering the further allowance linked to the 
budgetary  impact  of  the  exceptional  inflow  of  refugees  possibly  granted  for  2016. 
Austria is  forecast to  comply  with  the transitional debt  rule in  2016 and, following 
the end of the transition period, the debt reduction benchmark in 2017. Based on its 
assessment of the stability programme and taking into account the Commission 2016 
spring forecast, the Council is of the opinion that there is a risk that Austria will not 
comply  with  the  provisions  of  the  Stability  and  Growth  Pact.  Therefore  further 
measures will be needed to ensure compliance in 2016 and 2017. 

The  budgetary  effect  of  the  recent  tax  reform  still  represents  an  element  of 
uncertainty. When taking measures to ensure fiscal sustainability, account should be 
taken of the fact that, despite recent reforms, the tax burden on labour remains high 
and  Austria  has  a  high  tax  wedge  in  comparison  with  other  European  countries. 
Meanwhile, more growth-friendly taxation sources which allow the reduction of the 
tax  burden  on  labour  are  under-utilised.  Taking  steps  to  reduce  the  tax  burden  on 
labour by shifting the tax burden to other sources less detrimental to growth would 
help to address this problem. 

In  2015  the  employment  rate  of  people  aged  between  55  and  64  was  46.3 %  (EU-
average:  53.3 %)  and  ranked  19th  in  comparison  with  other  Member  States. 
Additional measures to increase the effective retirement age have been in force since 
2014  and  have  had  some  effect.  It  remains  to  be  seen  whether  these  measures  will 
reverse  a  trend  whereby  the  effective  retirement  age  in  Austria  lags  behind  the 
average  in  the  EU  in  the  medium  term.  In  addition,  the  duration  of  retirement  is 
increasing,  due  to  higher  life  expectancy.  The  statutory  retirement  age  for  women 
will be increased and aligned only gradually with that of men, starting in 2024 and 
ending in 2033. In Austria, the statutory retirement age is not linked to increasing life 
expectancy.  The  Commission  estimates  that,  in  2040,  pension  expenditure  will 
increase  by  0.8 %  of  GDP  compared  with  2013.  In  the  long  run  (2060),  pension 
expenditure  is  expected  to  increase  by  0.5 %  of  GDP.  Similarly,  healthcare 
expenditure is expected to increase between 2013 and 2040 by 1 % of GDP, and by 
1.3 % of GDP in 2060. This, together with the projected increase in expenditure on 
long-term care, qualifies as a medium risk for Austria’s fiscal sustainability.  

(7) 

(8) 

(9) 

The fiscal arrangements across  the various layers of government (federal, state  and 
local  levels)  are  complex  and  revenue  and  expenditure  responsibilities  are  not 
aligned in many policy areas, such as health care. While, according to 2014 OECD 

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(10) 

(11) 

data,  sub-national  governments  have  policy  responsibilities  amounting  to  general 
government  spending  of  16 %  of  GDP,  the  share  of  sub-national  taxes  is  only  at 
around  2 %  of  GDP.  These  complexities  are  costly  and  may  decrease  budgetary 
discipline.  The  allocation  of  revenues  between  the  three  levels  of  government  is 
currently  being  negotiated  for  the  period  starting  in  2017,  thus  providing  an 
opportunity to address this matter. 

Austria has traditionally one of the lowest unemployment rates in the EU. However, 
it  has  been  increasing  since  2011  and  reached  5.7 %  in  2015.  The  youth 
unemployment  rate  is  also  low:  10.6 %  of  active  15-24  year  olds  in  2015.  Austria 
also has a high employment rate. However, while the female employment rate is, at 
70.2 %,  above  the  EU  average,  a  comparatively  large  proportion  of  women  works 
part-time, because of childcare obligations or care for the elderly. This contributes to 
one  of  the  highest  gender  pay  gaps  in  the  EU  and  a  high  gender  pension  gap.  For 
older workers (aged 55 to 64), the employment rate is below the EU average. 

Austria has already exceeded its national Europe 2020 targets for education. In 2015, 
the early school leaving rate was 7.3 % and the tertiary attainment rate was 38.7 %. 
However,  education  outcomes  depend  heavily  on  socio-economic  background. 
Inter-generational mobility in education is among the lowest of all OECD countries 
for which data is available. The drop-out rate of foreign-born pupils is almost three 
times higher than that of native-born and there is an additional challenge to integrate 
young refugees and migrants of compulsory school age and above into the education 
and training system. 

(12)  While there are challenges for Austrian banks on both domestic and foreign markets, 
supervisory  action  at  national  and  European  level  has  helped  to  address  risks  from 
deteriorating  asset  quality  in  central,  eastern,  and  south-eastern  Europe.  Regarding 
the  restructuring  and  winding-down  of  distressed  financial  institutions,  the  fiscal 
risks  have  already  been  factored  into  government  accounts.  While  further  risks 
cannot  be  excluded,  they  seem  to  be  limited  to  legacy  issues  for  a  few  specific 
institutions.  

(13) 

Austria has a higher investment rate than the EU average for all components of GDP, 
except dwellings. However, investment in Austria has been weak since 2012, despite 
solid  corporate  liquidity  and  favourable  financing  conditions.  In  order  to  stimulate 
investment and growth, administrative complexities and hurdles should be removed. 
For example, regulatory barriers and administrative burden in the area of provision of 
services  are  not  conducive  to  opening  new  businesses.  Regarding  barriers  to  the 
setting-up of interdisciplinary companies, as referred to in the 2015 country-specific 
recommendations,  Austria  has  started  to  consider  improvements,  but  no  decisions 
have  yet  been  taken.  In  business  services,  particular  challenges  stem  from  the 
restrictive  authorisation 
form  and 
shareholding,  resulting  in  low  market  dynamics  and  negative  productivity  growth. 
The action plan submitted by Austria as a result of the mutual evaluation on access to 
and  practice  of  regulated  professions  proposes  only  a  limited  number  of  actions, 
whereas there is clear scope for more ambitious proposals. 

requirements  and 

restrictions  on 

legal 

(14) 

The high influx of refugees experienced in the past year has a number of social and 
economic consequences for Austria. While in the short run, the inflow of refugees is 
set to increase public expenditure and to create additional domestic demand, thereby 
raising  GDP,  the  medium-term  effect  on  employment  and  growth  hinges  on 
refugees’ successful labour  market and social integration, including  via educational 

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(15) 

support. This issue is high on the political agenda both at the EU and Member State 
level  and  will  be  monitored  and  analysed  closely,  including  in  the  2017  country 
report. 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Austria’s  economic  policy  and  published  it  in  the  2016 
country report. It has also assessed the stability programme and the national reform 
programme and the follow-up given to the recommendations addressed to Austria in 
previous  years.  It  has  taken  into  account  not  only  their  relevance  for  sustainable 
fiscal and socioeconomic policy in Austria but also their compliance with EU rules 
and guidance, given the need to strengthen the EU’s overall economic governance by 
providing EU-level input into future national decisions. The recommendations under 
the European Semester are reflected in recommendations 1 to 3 below. 

(16) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  stability  programme, 
and its opinion10 is reflected in particular in recommendation 1 below.  

HEREBY RECOMMENDS that Austria take action in 2016 and 2017 to: 

1. 

2. 

3. 

Ensure that the deviation from the medium-term budgetary objective in 2016 and in 
2017  is  limited  to  the  allowance  linked  to  the  budgetary  impact  of  the  exceptional 
inflow of refugees in 2015, and to that effect achieve an annual fiscal adjustment of 
0.3% of GDP in 2017 unless the medium-term budgetary objective is respected with 
a lower effort. Ensure the sustainability of the healthcare system; and of the pension 
system by linking the statutory pension age to life expectancy. Simplify, rationalise 
and  streamline  fiscal  relations  and  responsibilities  across  the  various  layers  of 
government. 

Improve  the  labour  market  participation  of  women.  Take  steps  to  improve  the 
educational achievements of disadvantaged young people, in particular those from a 
migrant background. 

Reduce  administrative  and  regulatory  barriers  for  investments,  such  as  restrictive 
authorisation  requirements  and  restrictions  on  legal  form  and  shareholding,  and 
impediments  to  setting  up  interdisciplinary  companies,  in  particular  in  the  area  of 
services.  

Done at Brussels, 

For the Council 
The President 

10 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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