Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Austria and delivering a Council opinion on the 2017 Stability Programme of Austria
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: Austria, budget deficit, economic policy, economic reform, education, female work, investment promotion, organisation of health care, pension scheme, stability programme

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   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 519 final   Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Austria  and delivering a Council opinion on the 2017 Stability Programme of Austria  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2017 National Reform Programme of Austria 

and delivering a Council opinion on the 2017 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 
policies,1 and in particular Article 5(2) thereof, 
Having regard to the recommendation of the European Commission,2 
Having regard to the resolutions of the European Parliament,3 

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  16 November  2016,  the  Commission  adopted  the  Annual  Growth  Survey,4 
marking  the  start  of  the  2017  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  9-10 March  2017.  On  16 November  2016,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report,5  in  which  it 
did  not  identify  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 
area. That Recommendation was endorsed by the European Council on 9-10 March 
2017 and adopted by the Council on 21 March6. 

(2) 

As  a  country  whose  currency  is  the  euro  and  in  view  of  the  close  interlinkages 
between the economies in the economic and monetary union, Austria should ensure 

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OJ L 209, 2.8.1997, p. 1. 
COM(2017) 519 final. 
P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040. 
COM(2016) 725 final. 
COM(2016) 728 final. 
2017/C92/01 

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(3) 

(4) 

(5) 

(6) 

(7) 

the full and timely implementation of the Recommendation for the euro area which is 
reflected in recommendation 1 below. 
The 2017 country report for Austria7 was published on 22 February 2017. It assessed 
Austria’s  progress  in  addressing  the  country-specific  recommendations  adopted  by 
the Council on 12 July 2016, the follow-up given to the recommendations adopted in 
previous years and Austria’s progress towards its national Europe 2020 targets.  

On 21 April 2017, Austria submitted its 2017 National Reform Programme and on 2 
May 2017 Austria submitted its 2017 Stability Programme. To take account of their 
interlinkages, the two programmes have been assessed at the same time. 

The relevant country-specific recommendations have been taken into account in the 
Member States' programmes for the European Structural and Investment Funds (ESI 
Funds) covering the 2014-2020 period. As foreseen in the legislation governing the 
ESI Funds,8 where it is necessary to support the implementation of relevant country-
specific  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and  amend  its  relevant  ESI  Funds  programmes.  The  Commission  has  provided 
further guidelines on the application of those rules.9 

Austria  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact  and 
subject to the debt rule. In its 2017 Stability Programme, the government expects that 
the  headline  deficit  will  improve  to  1.0%  of  GDP  in  2017  and  then  reach  0.3%  of 
GDP in 2021. The medium-term budgetary objective — a structural deficit of 0.45% 
of  GDP  until  2016  and  0.5%  of  GDP  thereafter  —  is  foreseen  to  be  met  in  2019. 
According to the Stability Programme, the general government debt-to-GDP ratio is 
expected  to  gradually  decline  to  71.0%  in  2021  from  84.6%  in  2016.  The 
macroeconomic  scenario  underpinning  these  budgetary  projections  is  favourable, 
assuming buoyant growth of investment and exports in 2017 and 2018.  

The  Stability  Programme  indicates  that  the  budgetary  impact  of  the  exceptional 
inflow of refugees and security-related measures is significant and provides adequate 
evidence  of  the  scope  and  nature  of  these  additional  budgetary  costs.  According  to 
the  Commission,  the  eligible  additional  expenditure  in  2016  amounted  to  0.25%  of 
GDP for the exceptional inflow of refugees and 0.04% of GDP concerning security-
related  measures.  In  2017,  the  additional  impact  compared  to  2016  of  the  security-
related measures is currently estimated at 0.01% of GDP. The provisions set out in 
Article 5(1) and Article 6(3) of Regulation (EC) No 1466/97 cater for this additional 
expenditure,  in  that  the  inflow  of  refugees  as  well  as  the  severity  of  the  terrorist 
threat are unusual events, their impact on Austria's public finances is significant and 
sustainability would not be compromised by allowing for a temporary deviation from 
the  adjustment  path  towards  the  medium-term  budgetary  objective.  Therefore,  the 
required adjustment towards the medium-term budgetary objective for 2016 has been 
reduced  to  take  into  account  additional  refugee-related  and  security-related  costs. 

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SWD(2017) 85 final. 
Article  23  of  Regulation  (EU)  No  1303/2013  of  the  European  Parliament  and  of  the  Council  of  17 
December  2013  laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the 
European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and 
the  European  Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European 
Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime 
and  Fisheries  Fund  and  repealing  Council  Regulation  (EC)  No  1083/2006,  OJ  L  347,  20.12.2013,  p. 
320. 
COM(2014) 494 final. 

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(8) 

(9) 

(10) 

Regarding 2017, a final assessment, including on eligible amounts, will be made in 
spring 2018 on the basis of observed data as provided by the Austrian authorities.  

On 12 July 2016, the Council recommended Austria to ensure that the deviation from 
the  medium-term  budgetary  objective  is  limited  to  the  allowance  linked  to  the 
budgetary impact of the exceptional inflow of refugees,10 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. Based on the Commission 2017 
spring forecast, the structural balance is required to remain stable in 2017, taking into 
account  the  granted  allowances.  The  Commission  forecast  points  to  a  risk  of  some 
deviation  from  that  requirement  in  2017.  In  2018,  based  on  the  Commission  2017 
spring  forecast,  Austria  should  ensure  that  the  nominal  growth  rate  of  net  primary 
government expenditure11 does not exceed 2.2%, corresponding to an improvement 
in  the  structural  balance  by  0.3%  of  GDP.12  Under  unchanged  policies,  Austria 
would be at risk of some deviation from the requirement in 2018. At the same time, 
Austria  is  forecast  to  comply  with  the  debt  rule  in  2017  and  2018.  Overall,  the 
Council is of the opinion that Austria needs to stand ready to take further measures to 
ensure compliance in 2017 and 2018. 

Pension  and  healthcare  spending  pose  a  medium  risk  to  fiscal  sustainability  in  the 
medium  and  long  term,  due  to  a  rapidly  ageing  population.  Austria’s  public 
expenditure  on  pensions  is  relatively  high  compared  to  the  rest  of  Europe  and  is 
expected to increase by 0.5 percentage points of GDP by 2060. This compares to the 
EU average which is expected to decrease by 0.2 percentage points of GDP over the 
same period. The effective retirement age, which remains low despite recent reforms, 
is one of the main drivers of higher pension expenditure. It is currently at 60 years 
and 3 months, well below the EU average of 63 years and 6 months for men and 62 
years and 6 months for women (2014). Furthermore, the current statutory retirement 
age for women of 60 years is among the lowest in the EU, and it will only start to be 
harmonised with that of men in 2024. Linking the statutory retirement age to changes 
in  life  expectancy  would  help  to  ensure  pension  sustainability  in  an  ageing 
demographic context, also by contributing to raising the effective retirement age. 

For healthcare, public expenditure is expected to rise significantly in the medium and 
long term from already high levels, namely by 1.3 percentage points of GDP by 2060 
compared  to  the  EU  average  of  0.9  percentage points.  The  main  driver  of  the  high 
healthcare spending is the large hospital sector, while the less costly outpatient care 
is underutilised. The proportion of hospital expenditure in overall healthcare costs is 
one  of  the  highest  in  the  EU.  The  recent  initiatives  aimed  at  strengthening  the 
provision of primary care therefore need to be thoroughly implemented, including by 
supporting  new  financial  agreements  between  healthcare  providers  and  social 

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Austria  is  allowed  to  deviate  from  its  medium-term  budgetary  objective  up  to  2017  and  2018  by  the 
additional budgetary impact related to the exceptional inflow of refugees and security-related measures 
incurred in 2015 and 2016 respectively, as temporary deviations are carried forward in each case for a 
total period of three years. 
Net  government  expenditure  is  comprised  of  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 
For Austria the adjustment requirement in 2018 takes into account the allowance linked to the unusual 
events granted for 2016, as temporary deviations are carried forward for a period of three years. 

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security  funds.  Furthermore,  Austria’s  hospital  sector  makes  insufficient  use  of 
effective public procurement such as EU-wide tendering (0.23 % of GDP compared 
to 0.62 % EU average), procurement aggregation and non-price award criteria. 

(11) 

The  2017  financial  equalisation  law  has  helped  to  simplify  the  financial  relations 
between  the  different  layers  of  government  in  Austria.  Nevertheless,  the  fiscal 
framework in Austria remains overly complex in terms of competencies and financial 
arrangements,  and  still suffers from  misalignments  between limited revenue-raising 
powers and broader spending responsibilities of local and federal state governments. 

(12)  While  the  2016  tax  reform  has  reduced  the  tax  wedge  from  49.5 %  to  46.7 %,  it 
remains  relatively  high  compared  to  the  EU  average  of  40.6 %  (figures  refer  to  a 
single  average  income  earner  without  children).  In  the  absence  of  an  indexation  of 
tax brackets to inflation, the tax wedge will again gradually increase as an effect of 
the yearly fiscal drag. By contrast, more growth-friendly sources of revenue, such as 
recurrent property taxes, are underutilised, mainly because the tax base is outdated. 
Revenues from recurrent property taxes in Austria are very low, amounting to 0.2 % 
of  GDP  compared  to  the  EU  average  of  1.6 %  of  GDP  in  2014.  Similarly,  the 
implicit  tax  rate  on  energy  in  Austria  is  relatively  low,  pointing  to  unexploited 
potential for environmental taxes, which also include positive behavioural incentives.   

(13)  While  the  labour  market  performs  better  in  Austria  than  in  most  EU  countries, 
challenges  remain.  In  particular,  women’s  labour  market  potential  is  underused,  as 
reflected in the high gender pay gap,  inter alia resulting from a high share of part-
time  employment.  In  2015,  the  gender  pay  gap  was  21.7 %,  compared  to  the  EU 
average of 16.3 %. The high and above-average proportion of women working part-
time  is  largely  driven  by  care  responsibilities  for  children  and  the  elderly.  The 
number of early childcare places for children under 3 years of age was at 25.5 % in 
2015, still significantly below the Barcelona target of 33 %. 

(14) 

(15) 

(16) 

Austria  has  already  exceeded  its  national  Europe  2020  targets  for  education. 
However,  education  outcomes  depend  considerably  on 
the  socioeconomic 
background  as  confirmed  by  the  2015 OECD  PISA  results.  Furthermore,  the 
education  results  of  pupils  with  a  migrant  background  are  considerably  worse  than 
those without one. In 2015, foreign born pupils were three times more likely to leave 
school  before  completing  upper  secondary  education  than  native  born  pupils.  The 
integration challenge also affects Austrian born children of immigrants. Furthermore, 
Austria faces challenges to integrate a large number of asylum seekers and refugees 
into its education system. 

Banking sector developments point towards a steady, albeit slow improvement. The 
capitalisation of Austrian banks remains below that of its EU peers and their ability 
to  generate  profits  in  the  domestic  market  has  been  under  pressure.  Regarding 
international  operations,  asset  quality  and  profitability  has  improved  further  in 
several  markets  in  Central,  Eastern  and  South-Eastern  Europe,  but  pockets  of 
vulnerability  still  remain.  Meanwhile,  the  increase  in  real  estate  prices  and  the 
revival  of  mortgage  lending  underscores  the  importance  of  macro-prudential 
measures. 

Investment growth  in  Austria  returned  in  2016 but  investment  by  SMEs  and  in  the 
service  sector  continued  to  show  weaknesses.  Austria  has  recognised  the  role  that 
business  creation  and  firm  growth  play  for  new  investments  (i.e.  going  beyond 
replacement  investments)  and  for  the  corresponding  job  creation.  Austria  has 
therefore set itself ambitious targets to facilitate digital transformation as well as to 

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(17) 

(18) 

(19) 

tackle its traditionally low rate of business creation (7.4 % in compared to 10.8 % EU 
average) and company growth (7.3 % share of high growth firms compared to 9.2 % 
EU average). Some specific measures have already been announced, which combine 
the reduction of investment barriers with improved framework conditions for equity 
capital funding, entrepreneurship promotion and taxation incentives. 

High  regulatory  barriers  remain  in  the  business  services  sector  and  regulated 
professions  with  the  level  of  restrictions  being  higher  than  the  EU  average  in 
particular for architects and engineers. In addition, for these professions, as well as 
for  lawyers,  accountants/tax  advisers,  patent  agents,  real  estate  agents  and  tourist 
guides,  the  business  churn  rate  is  significantly  lower  than  the  EU  average,  which 
seems to indicate relatively low dynamism and competition in professional services 
in  Austria.  These  barriers  include,  inter  alia  (1)  shareholding  and  company  form 
restrictions  for  architects,  engineers  and  patent  attorneys,  (2)  multidisciplinary 
restrictions  for  architects  and  engineers,  as  well  as  (3)  particularly  wide  scopes  of 
reserved activities for architects, engineers and tourist guides. The reduction of such 
barriers could generate more intensive competition, resulting in more firms entering 
the  market,  and  leading  to  benefits  for  consumers  in  terms  of  lower  prices. 
Recommendations  to  address  this  issue  were  made  in  January  2017  in  a 
Communication  from  the  Commission,  as  part  of  a  package  of  measures  to  tackle 
barriers in services markets.13 

Austria has made considerable efforts in receiving asylum seekers and in integrating 
refugees  as  well  as  other  immigrants.  Nevertheless,  labour  market  integration  of 
people with a migrant background, in particular women born outside the EU and job 
seeking refugees, remains a challenge. 

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  2017 
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.  

(20) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  Stability  Programme 
and its opinion14 is reflected in particular in recommendation 1 below, 

HEREBY RECOMMENDS that Austria take action in 2017 and 2018 to: 

1. 

2. 

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Pursue  its  fiscal  policy  in  line  with  the  requirements  of  the  preventive  arm  of  the 
Stability  and  Growth  Pact,  which  implies  to  achieve  its  medium  term  budgetary 
objective in 2018, taking into account the allowance linked to unusual events. Ensure 
the sustainability of the healthcare system and of the pension system. Rationalise and 
streamline  competencies  across  the  various  layers  of  government  and  align  their 
financing and spending responsibilities. 

Improve labour market outcomes of women, also through the provision of full-time 
care services. Improve the educational achievements of disadvantaged young people, 
in  particular  those  from  a  migrant  background.  Foster  investment  in  the  services 

COM(2016)  820  final,  COM(2016)  821  final,  COM(2016)  822  final,  COM(2016)  823  final, 
COM(2016) 824 final. 
Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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sector  by  reducing  administrative  and  regulatory  barriers,  easing  market  entry  and 
facilitating company growth. 

Done at Brussels, 

For the Council 
The President 

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