Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Austria and delivering a Council opinion on the 2018 Stability Programme of Austria
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: Austria, budget deficit, digitisation, early retirement, economic policy, economic reform, fiscal policy, integration of migrants, organisation of health care, stability programme

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 419 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Austria  and delivering a Council opinion on the 2018 Stability Programme of Austria  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of Austria 

and delivering a Council opinion on the 2018 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 22 November 2017, the Commission adopted the Annual Growth Survey, marking 
the start of the 2018 European Semester of economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  22  March 
2018.  On  22  November  2017,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission  also  adopted  the  Alert  Mechanism  Report,  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, which was endorsed by the 
European  Council  on  22  March  2018.  On  14  May  2018,  the  Council  adopted  the 
recommendation  on  the  economic  policy  of  the  euro  area  (‘recommendation  for  the 
euro area’). 

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OJ L 209, 2.8.1997, p. 1. 
COM(2018) 419 final. 
P8_TA(2018)0077 and P8_TA(2018)0078. 

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(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

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As a Member State whose currency is the euro and in view of the close interlinkages 
between  the  economies  in  the  economic  and  monetary  union,  Austria  should  ensure 
the full and timely implementation of the recommendation on the economic policy for 
the euro area, as reflected in recommendations (1) to (2) below. 
The  2018  country  report  for  Austria4  was  published  on  7 March  2018.  It  assessed 
Austria’s progress in addressing the country-specific recommendations adopted by the 
Council  on  11 July  2017,  the  follow-up  given  to  the  recommendations  adopted  in 
previous years and Austria's progress towards its national Europe 2020 targets. 

On  25  April  2018,  Austria  submitted  its  2018  National  Reform  Programme  and  on 
21 March  2018,  Austria  submitted  its  2018  Stability  Programme.  To  take  account  of 
their interlinkages, the two programmes have been assessed at the same time. 

Relevant country-specific recommendations have been addressed in 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 of the European Parliament 
and  of  the  Council5,  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 that provision 
in  guidelines  on  the  application  of  the  measures  linking  the  effectiveness  of  the 
European Structural and Investment Funds to sound economic governance6.  

Austria is currently in the preventive arm of the Stability and Growth Pact and subject 
to  the  debt  rule.  In  its  2018  Stability  Programme,  the  government  expects  that  the 
headline balance will improve from a deficit of 0.7 % of GDP in 2017 to a surplus of 
0.4 % of GDP in 2022. The medium-term budgetary objective — a structural deficit of 
0.5 % of GDP as of 2017 — is projected to be met in 2019. According to the Stability 
Programme,  the  general  government  debt-to-GDP  ratio  is  expected  to  gradually 
decline from 78.1 % of GDP in 2017 to 62.2 % of GDP in 2022. The macroeconomic 
scenario  underpinning  those  budgetary  projections  is  favourable  for  2018  and 
plausible afterwards. The main risks underlying the medium-term budgetary planning 
are discretionary policy measures envisaged as of 2020, such as the announced reform 
of the personal income tax, whose net budgetary effects are not yet fully specified.  

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 2017 amounted to 0.03 % of GDP 
for the exceptional inflow of refugees while no further cost was incurred for security-
related measures. The provisions set out in Articles 5(1) and 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 

SWD(2018) 218 final. 
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) 

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 2017 has been reduced to take into account additional refugee-
related costs.  

On 11 July 2017, the Council recommended Austria to ensure that the deviation from 
the medium-term budgetary objective in 2018 is limited to the allowance linked to the 
budgetary impact of the exceptional inflow of refugees and security-related measures. 
This  is  consistent  with  a  maximum  nominal  growth  rate  of  net  primary  government 
expenditure  of  3.3  %  in  2018,  corresponding  to  an  allowed  deterioration  in  the 
structural balance by 0.2 % of GDP. Taking into account the granted allowances, the 
Commission  2018  spring  forecast  points  to  a  risk  of  some  deviation  from  that 
requirement in 2018 and over 2017 and 2018 taken together.  

In  2019,  Austria  should  achieve  its  medium-term  budgetary  objective,  taking  into 
account  the  allowance  linked  to  unusual  events  for  which  a  temporary  deviation  is 
granted.  This  is  consistent  with  a  maximum  nominal  growth  rate  of  net  primary 
government expenditure of 2.9 %, corresponding to an improvement in the structural 
balance  by  0.3  %  of  GDP.  Based  on  the  Commission  2018  spring  forecast,  under 
unchanged  policies,  Austria  would  be  at  risk  of  a  significant  deviation  from  the 
requirement in 2019, due to the deviation over 2018 and 2019 taken together. At the 
same  time,  Austria  is  projected  to  be  within  a  distance  of  0.1  %  of  GDP  from  its 
medium-term  objective  in  2019.  In  addition,  Austria  is  forecast  to  comply  with  the 
debt rule in 2018 and 2019. Overall, the Council is of the opinion that Austria needs to 
stand  ready  to  take  further  measures  to  ensure  compliance  in  2018  and  that  the 
necessary  measures  should  be  taken  in  2019  to  comply  with  the  provisions  of  the 
Stability and Growth Pact. 

(10)  According  to  the  2018 Ageing  Report,  the  projected  increase  in  pension,  health  care 
and long term care expenditures points to a medium risk to fiscal sustainability in the 
medium  and  long  term.  Austria’s  public  expenditure  on  pensions  is  above  the  EU 
average (13.8 % compared to 11.2 % of GDP in 2016) and expected to increase further 
by  2070  (0.5 %  compared  to  -0.2 %  of  GDP).  Although  recent  reforms  have 
successfully  provided  incentives  to  retire  later,  the  further  accumulation  of  benefit 
entitlements  during  the  extended  working  lifetime  does  not  improve  long-term 
sustainability. At 60, the statutory retirement age of women is among the lowest in the 
EU.  The  statutory  retirement  age  of  women  will  only  gradually  adjust  as  of  2024, 
achieving  harmonisation  with  the  male  statutory  retirement  age  only  as  of  2033. 
Overall, increasing the statutory retirement age and restricting early retirement would 
contribute to pension sustainability in an ageing demographic context. 

introduction  of  expenditure  ceilings 

(11)  Public  health  care  expenditure  is  above  the  EU  average  (7 %  compared  to  6.8 %  of 
GDP in 2016) and expected to increase more than the EU average (1.3 % versus 0.9 % 
of GDP), which would raise public health care expenditure to 8.3 % of GDP by 2070. 
Expenditure on long-term care is projected to double from 1.9 % to 3.8 % of GDP by 
2070.  The 
the  2017  Financial 
Equalisation Law and the reform strengthening primary health care and reducing the 
reliance  on  the  hospital  sector  have  started  to  address  the  sustainability  issue.  The 
persistently  high  number  of  health  insurance  agencies  provides  an  indication  of 
potential  further  savings  in  governance  and  administrative  costs.  In  addition,  more 
effective public procurement (e.g. EU-wide tendering, the use of award criteria other 
than price and cross-regional tender aggregation) would help improve quality and cost-
efficiency. In the area of long-term care, recent policy measures such as the decision to 

through 

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abolish the recourse to private assets of people to finance inpatient long-term care are 
expected to increase, rather than contain, expenditure. 

(12)  The  2017  Financial  Equalisation  Law  has  contributed  to  streamlining  the  fiscal 
relations  among  the  different  levels  of  government  by  initiating  task-oriented 
financing, simplifying the distribution of intergovernmental transfers, and assigning an 
own source of revenue to the States. However, despite these reform efforts, the fiscal 
framework continues to be opaque and the significant mismatch between expenditure 
and revenue-raising responsibilities persists, providing weak incentives for budgetary 
discipline at subnational level. 

(13)  Despite  the  2016  tax  reform,  the  tax  burden  on  labour  remains  high  and  is  set  to 
gradually increase over time if tax brackets are not indexed to inflation. Higher income 
earners  saw  a  relatively  large  benefit  from  the  reform  compared  to  lower  income 
earners, and the tax burden for low-income earners remains high. The tax reform also 
benefited  men  more  than  women.  Sources  of  revenue  deemed  less  detrimental  to 
growth, such as recurrent property taxes, appear to be underutilised, mainly because of 
a largely outdated tax base. Revenues from recurrent property taxes in Austria are low, 
amounting to  0.2 %  of GDP compared to  the EU average of 1.6 %  of GDP in  2016. 
Shifting the tax burden from labour to less detrimental sources of revenue could help 
address this problem. 

(14)  The labour market performs well, however challenges for specific groups (e.g. women 
and people with a migrant background) remain. Despite an overall high employment 
rate  for  women,  labour  market  outcomes  in  terms  of  full-time  employment  remain 
rather poor. The rate of female part-time employment, at 47.9 % in 2016, remains one 
of the highest in the EU (EU average: 31.4 %). The issues related to access to formal 
childcare,  including  notably  outside  the  urban  area,  contribute  to  this  outcome.  The 
high  share  of  women  in  part-time  work,  which  is  largely  the  result  of  women 
performing important unpaid tasks such as caring for children and relatives, as well as 
lower hourly earnings, contribute to a persistently high gender pay gap. The latter has 
a  direct  impact  on  women's  accumulation  of  pension  rights,  resulting  in  a  large 
pension gap. 

(15)  Learning  outcomes  for  disadvantaged  students  have  not 

improved.  A  wide 
performance  gap  remains  between  students  with  and  without  a  migrant  background. 
National testing in 2016 confirmed that more than 25 % of pupils lack basic skills in 
German.  Recent  international  testing  also  confirmed  a  widening  gap  in  reading  for 
those  from  a  lower  socioeconomic  or  migrant  background.  Comparing  the  2012  and 
2015  results  of  the  Programme  for  International  Student  Assessment  (PISA),  the 
proportion  of  low  achievers  increased  in  all  three  core  areas  surveyed,  i.e. 
mathematics,  reading  and  science.  Austrian-born  pupils  outperform  first  generation 
migrants by a level equivalent to almost 3 years of schooling. 

(16)  While  productivity  is  high  in  Austria,  productivity  growth  has  been  lacklustre  over 
recent years despite Austria’s considerable efforts, such as by investing in research and 
development  and  improving  the  framework  for  start-ups.  The  remaining  levers  to 
support productivity growth relate to the digitalisation of businesses, company growth 
and competition in services. Austria has significant access barriers and restrictive rules 
on the exercise of business services and regulated professions. These include specific 
interdisciplinary 
shareholding  requirements,  extensive  reserved  activities  and 

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restrictions7.  Continued  efforts  to  reduce  burdens  and  the  planned  evaluation  of 
Austria’s Trade Licence Act (Gewerbeordnung) are important instruments to address 
this issue. 

(17)  More  competition  in  the  service  sector  would  help  address  Austria’s  challenges  in 
spreading digital technologies and business models, notably among micro, small and 
medium-sized enterprises. Digitalisation of these enterprises is particularly important 
in  Austria  as  they  form  the  backbone  of  the  Austrian  economy.  Initiatives  such  as 
‘KMU Digital’ and ‘AT: net’ and the implementation of the Digital Roadmap Austria 
are  key.  A  further  issue  concerns  the  scaling-up  of  companies  and  in  particular  of 
highly  innovative  companies.  Later  stage  funding,  such  as  in  the  forms  of  venture 
capital and access to public capital markets for scale-ups, is a bottleneck. High-growth 
companies  are  crucial  for  the  diffusion  of  new  technologies  and  business  models, 
including digital ones, and thus for productivity growth. 

(18) 

In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Austria’s  economic  policy  and  published  it  in  the  2018 
country  report.  It  has  also  assessed  the  2018  Stability  Programme  and  the  2018 
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 Union rules and guidance, given the need to strengthen the Union’s 
overall  economic  governance  by  providing  Union-level  input  into  future  national 
decisions.  

(19) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2018  Stability 
Programme and its opinion8 is reflected in particular in recommendation 1 below. 

HEREBY RECOMMENDS that Austria take action in 2018 and 2019 to: 

1. 

2. 

Achieve  the  medium-term  budgetary  objective  in  2019,  taking  into  account  the 
allowance  linked  to  unusual  events  for  which  a  temporary  deviation  is  granted. 
Ensure the sustainability of the health and long-term care  and the pension systems, 
including  by  increasing  the  statutory  retirement  age  and  by  restricting  early 
retirement. Make public services more efficient, including through aligning financing 
and spending responsibilities. 

Reduce the tax wedge, especially for low-income earners, by shifting the tax burden 
to sources of revenue less detrimental to growth. Improve labour market outcomes of 
women.  Improve  basic  skills  for  disadvantaged  young  people  and  people  with  a 
migrant  background.  Support  productivity  growth  by  stimulating  digitalisation  of 
businesses  and  company  growth  and  by  reducing  regulatory  barriers  in  the  service 
sector. 

Done at Brussels, 

For the Council 
The President 

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Recommendations  to  address  these  issues  were  made  in  January  2017  in  COM(2016) 820  and  SWD 
(2016)436. 
Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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