Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Austria and delivering a Council opinion on the 2019 Stability Programme of Austria
Date: 2019-06-05
Institutions: European Commission, Secretariat-General
Subjects: Austria, economic policy, economic reform, female work, fiscal policy, health care system, investment, pension scheme, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 520 final  Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Austria and delivering a Council opinion on the 2019 Stability Programme of Austria    
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2019 National Reform Programme of Austria and delivering a Council opinion on 
the 2019 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 Commission, 

Having regard to the resolutions of the European Parliament, 

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 21 November 2018, the Commission adopted the Annual Growth Survey, marking 
the start of the 2019 European Semester for 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  21  March 
2019.  On  21  November  2018,  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 date, 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  21  March  2019.  On  9  April  2019,  the  Council  adopted  the 
recommendation  on  the  economic  policy  of  the  euro  area  (‘Recommendation  for  the 
euro area’).  

(2) 

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 

1 

OJ L 209, 2.8.1997, p. 1. 

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(3) 

(4) 

(5) 

(6) 

the  full  and  timely  implementation  of  the  Recommendation  for  the  euro  area,  as 
reflected in recommendations (1) to (3) below. In particular, focusing economic policy 
related  to  investment  in  the  specified  areas  will  help  address  the  second  euro  area 
recommendation as regards supporting investment, while the recommendation to shift 
taxes  away  from  labour  addresses  the  third  euro  area  recommendation  regarding 
functioning of the labour market.  
The 2019 country report for Austria2 was published on 27 February 2019. It assessed 
Austria’s progress in addressing the country-specific recommendations adopted by the 
Council  on  13  July  2018,  the  follow-up  given  to  the  recommendations  adopted  in 
previous years and Austria’s progress towards its national Europe 2020 targets.  

On  24  April  2019,  Austria  submitted  its  2019  National  Reform  Programme  and  its 
2019  Stability  Programme.  In  order  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  ('ESI  Funds')  for  the  2014-2020 
period.  As  provided  for  in  Article  23  of  Regulation  (EU)  No  1303/2013  of  the 
European  Parliament  and  of  the  Council3,  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 ESI Funds to sound economic governance4.  

Austria is currently in the preventive arm of the Stability and Growth Pact and subject 
to  the  debt  rule.  In  its  2019  Stability  Programme,  the  government  expects  that  the 
headline balance will improve from a surplus of 0.1% of GDP in 2018 to 0.3% of GDP 
in 2019 and incrementally reduce to a balanced budget position in 2023. Based on the 
recalculated  structural  balance5,  the  medium-term  budgetary  objective  –  a  structural 
deficit  of  0.5%  of  GDP  –  continues  to  be  overachieved  throughout  the  programme 
period.  According  to  the  Stability  Programme,  the  general  government  debt-to-GDP 
ratio is expected to gradually decline from 73.8% of GDP in 2018 to 59.8% of GDP in 
2023.  The  macroeconomic  scenario  underpinning  those  budgetary  projections  is 
favourable.  The  risks  underlying  the  medium-term  budgetary  planning  appear  to  be 
moderate  and  mainly  concern  the  announced  implementation  of  cost  savings  in  the 
public administration that are to be used to finance the planned reform of the personal 
and corporate income tax. 

(7) 

On  13  July  2018,  the  Council  recommended  Austria  to  achieve  the  medium-term 
budgetary  objective  in  2019,  taking  into  account  the  allowance  linked  to  unusual 
events for which a temporary deviation is granted. This is consistent with a maximum 

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SWD(2019) 1019 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. 
Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 

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(8) 

(9) 

nominal growth rate of net primary government expenditure6 of 2.9%, corresponding 
to  an  improvement  in  the  structural  balance  by  0.3%  of  GDP.  Based  on  the 
Commission  2019  spring  forecast,  the  structural  balance  is  forecast  to  improve 
from  -0.1%  of  GDP  in  2019  to  0.0%  of  GDP  in  2020,  above  the  medium-term 
budgetary objective. Austria is forecast to comply with the debt rule in 2019 and 2020. 
Overall,  the  Council  is  of  the  opinion  that  Austria  is  projected  to  comply  with  the 
provisions of the Stability and Growth Pact in 2019 and 2020. 

Austria faces medium fiscal sustainability risks in the long term. These risks are due to 
the  projected  increase  in  public  expenditure  on  healthcare,  long-term  care  and 
pensions.  While  coverage  of  healthcare  services  is  generally  high  in  Austria,  public 
healthcare expenditure is projected to increase by 1.3 pps to 8.3% of GDP by 2070 and 
hence more than the EU average of 0.9 pps. Public expenditure on long-term care is 
projected  to  double  from  1.9%  to  3.8%  of  GDP  by  2070.  The  introduction  of 
expenditure  ceilings  through  the  2017  Financial  Equalisation  Law  and  the  Primary 
Health Care Reform, aimed at reducing the excessive reliance on the hospital sector, 
have  started  to  address  the  sustainability  issue.  The  recently  adopted  Social  Security 
Organisation  Act  may  entail  savings  in  governance  and  administrative  costs  but  will 
generate  upfront  costs.  Quality  and  cost-efficiency  would  be  further  helped  by  more 
effective public procurement (e.g. EU-wide tendering, the use of award criteria other 
than  price,  and  aggregating  tenders  across  regions)  and  a  wider  use  of  e-health 
solutions. In the area of long-term care, recent policy measures - such as the decision 
to abolish the obligation on patients to use their own private assets to fund long-term 
inpatient care - are expected to increase, rather than contain, expenditure. 

Pension  spending  would  peak  in  2036,  at  a  level  of  1.2 pps  of  GDP  above  the  2016 
reference point. Past reforms have successfully provided incentives to retire later (the 
effective exit age from the labour market increased by an estimated 1.5 years for men 
and by 1 year for women between 2014 and 2017). However, closing the gap between 
the statutory and the effective retirement age remains a challenge and longer working 
lives should be promoted. In addition, adjusting the minimum age for both early and 
statutory  retirement  would  help  improve  long-term  sustainability  more  effectively  in 
the context of an ageing society. Introducing an automatic link between the statutory 
retirement age and gains in life expectancy in the future could reduce public pension 
expenditure.  Such  a  reduction  is  estimated  to  2.4  pps  of  GDP  in  2016-2070,  thus 
offsetting the increase that would be the result of an unchanged policy. 

(10)  Austria’s fiscal federalism leads to a significant mismatch in expenditure and revenue-
raising  responsibilities  at  subnational  level.  Rather  than  relying  on  tax  autonomy, 
subnational budgets are fed by a complex system of tax sharing and intergovernmental 
transfers.  This  hampers  both  fiscal  transparency  and  political  accountability,  and 
provides  few  incentives  for  efficient  public  spending.  The  2017  Intergovernmental 
Fiscal  Relations  Act  has  introduced  a  series  of  changes  to  streamline  the  fiscal 
relations between the different levels of government. The changes include simplifying 
the distribution of shared taxes, assigning an own source of revenue to the Länder, and 
agreeing  on  further  reforms  for  a  more  transparent  allocation  of  legislative  and 

6 

Net  primary  government  expenditure  comprises  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. 

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executive  responsibilities  between  levels  of  government.  As  for  the  latter,  the 
Kompetenzbereinigungspaket  constitutes  a  first  step  towards  the  disentangling 
responsibilities as it re-allocates shared policy areas to either (exclusively) the federal 
or the Länder level, and reduces mutual rights of assent. However, the law affects only 
a limited number of policy areas. 

(11)  Austria’s tax structure is characterised by a high burden on labour (payroll taxes and 
social security contributions). The burden is set to increase over time, as long as tax 
brackets are not  indexed to  inflation. At 55.3%  in  2017, the share of labour  taxes in 
total tax revenue was one of the highest in the EU (average: 49.7%). Recent reforms, 
such  as  reductions  in  social  security  contributions  for  low-income  earners  and 
employers  as  well  as  the  tax  relief  for  working  parents  provided  by  the  new  Family 
Bonus plus, have helped lower the labour tax wedge. There remains scope for shifting 
the  tax  mix  towards  sources  that  support  more  inclusive  and  sustainable  growth.  In 
particular,  recurrent  property  taxes  are  found  to  be  relatively  growth-friendly  and 
progressive,  as  higher–income  earners  are  likely  to  possess  more  housing  wealth. 
However, due to a largely outdated tax base, revenue from recurrent property taxes in 
Austria  remains  low  and  well  below  the  EU  average.  A  revaluation  of  the  tax  base 
would help generate more revenue and address fairness issues that arise when land/real 
estate  values  are  decoupled  from  market  prices.  Effective,  well-designed  wealth-
related taxes could also make the tax system fairer, especially against the background 
of Austria’s striking wealth inequality and in the absence of inheritance and gift taxes. 
Finally, environmental taxes help internalise negative externalities of resource use and 
polluting  activities  related  to  health  and  climate.  In  this  context,  the  preferential  tax 
treatment such activities currently enjoy should be reconsidered.  

(12)  The labour market is improving; however, the untapped potential of human capital is 
hampering  productivity  and  long-term  growth  with  changes  particularly  required  for 
women,  low–skilled  workers,  older  workers  and  people  with  a  migrant  background. 
Despite an overall high employment rate for women (Austria 71.7% vs. EU 67.4% in 
2018),  the  number  in  full-time  employment  remains  rather  low.  Female  part-time 
employment is well above the EU average (Austria 47.6% vs. EU 30.8% in 2018) and 
is  mainly  related  to  insufficient  childcare  facilities  and  a  high  share  of  women 
performing unpaid care tasks.  The current design of childcare services provision and 
family-related leave do not sufficiently contribute to equal opportunities for men and 
women  on  the  labour  market.  Further  investment  in  affordable  full-time  childcare 
services  and  all-day  schools  would  help  more  women  work  full-time,  better  use  the 
labour market potential of women, and improve productivity and long-term inclusive 
growth.  Female  part-time  employment  also  explains  an  important  share  of  the 
unadjusted  gender  pay  gap,  which  remains  visibly  above  the  EU  average  (Austria 
19.9%  vs.  EU  16.0%  in  2017).  Other  important  drivers  of  this  gap  are  the  over-
representation  of  women  in  low-paid  sectors,  segregation  related  to  the  choice  of 
education, under-representation of women in  management and supervisory positions, 
and  career  breaks.  Overall,  the  substantial  gender  gap  in  pension  income  (Austria 
40.5%  vs  EU  35.2%,  in  2017),  is  largely  the  result  of  these  gender-specific  income 
inequalities generated during working life. Moreover, marginally employed people, a 
majority  of  whom  are  women,  are  not  covered  by  unemployment  benefit.  High 
unemployment rates among the low skilled point to underused labour market potential. 
More than 44% of all unemployed have completed only basic schooling (up to lower 
secondary  school,  ‘Pflichtschule’).  Active  labour  market  policies  encouraging  more 
people  to  work  or  look  for  a  job,  including  lifelong  learning  opportunities,  remain 
crucial  for  realising  the  labour  potential  of  workers  with  a  migrant  background  and 

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low-skilled adults. The involvement of social partners in the decision-making process 
for these policies, despite being traditionally strong, has been challenged.  

(13)  Shortages of skilled labour point to the need to invest more in general education and 
training.  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  showed  that  the  level  of  basic  skills  poses  a  challenge,  as 
around  one-quarter  of  8th  grade  pupils  do  not  or  only  partially  meet  educational 
standards  in  German.  Results  for  those  with  a  weak  socio-economic  and/or  migrant 
background have hardly improved in national testing. Recent international testing also 
confirmed  a  widening  gap  in  reading  for  those  from  a  lower  socio-economic  or 
migrant  background.  In  the  Programme  for  International  Student  Assessment, 
Austrian-born  pupils  outperform  first  generation  migrants  by  a  level  equivalent  to 
almost three years of schooling. Recent education reforms partly undermine previous 
reform efforts and are not in line with EU and OECD best practice. In this context, the 
expansion  of  all  day  schooling  has  slowed,  and  tracking  and  streaming  in  general 
school  is  being  intensified.  Investment  is  required  to  address  unequal  education 
outcomes  due  to  socio-economic  or  migrant  background.  While  Austria  performs 
above  average  in  the  EU  with  regard  to  the  digital  skills  of  its  citizens,  it  is  falling 
behind the top performing countries. There is a growing lack of skilled IT workers in 
the  economy,  as  increasing  demand  is  not  met  by  a  sufficient  supply  of  computing 
graduates. 

investment 

(14)  Austria is a country that invests heavily in research and development, with ambitious 
national targets. However, the scientific and innovation outputs are not at the level of 
those  of  EU’s  ‘Innovation  Leaders’7.  Increased 
in  research  and 
development  do  not  translate  entirely  into  innovation  outcomes  and  productivity 
growth.  In  particular,  Austria  performs  poorly  on  employment  in  fast-growing 
innovative firms. Research and development investment would be more effective if it 
was translated fully into excellent science and ground-breaking innovation. To do so, 
more and better links between science and business should be enabled and cooperation 
on  smart  specialisation  priorities  between  different  regions  and  with  other  countries 
should  be  encouraged.  In  addition,  further  investment  could  generate  major 
productivity  gains  and  innovation  outcomes  including  into  eco-innovation,  the 
innovation  capacity  of  small  and  medium-sized  enterprises  and  in  complementary 
intangible assets.  

(15)  While  Austria  performs  better  than  the  EU  average  in  overall  progress  with 
digitalisation, it does not reach the level of EU’s ‘Innovation Leaders’. This concerns 
the  use  of  digital technologies  but  also  their  development.  Austria’s  information  and 
technology sector is comparatively small and has not been subject to the same growth 
as similar sectors in the ‘Innovation Leader’ countries. Additionally, rural areas lack 
high-speed  connectivity,  which  increases  the  divide  in  digitalisation  and  innovation 
capacities between regions. Significant gaps also exist as regards digital infrastructure 
in schools, for example for the coverage of wireless local area networks. A relaunch of 
Austria’s  overall  digitalisation  strategy  offers  an  opportunity  to  adopt  targets  and 
indicators and also to monitor progress on the necessary public and private investment 
in digitalisation. 

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As defined by the European Innovation Scoreboard 2018 – Innovation leader: SE, DK, FI, NL, UK, LU 
Strong innovator: DE, BE, IE, AT, FR, SI.  

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(16) 

Increasing  energy  efficiency  and  the  share  of  renewable  energy  resources  would 
strengthen Austria’s sustainable growth potential and help meet the country’s climate 
and energy targets for 2030. Available solutions are used only sporadically, and public 
investment  in  research  and  development  in  the  area  of  environment  and  energy  is 
below the EU average. Improving energy efficiency and the use of renewable energy 
in  small  and  medium-sized  enterprises  would  help  reduce  energy  consumption. 
Investment  in  building  renovation,  renewable  electricity  generation  and  sustainable 
mobility  could  provide  a  significant  boost  to  the  Austrian  economy.  A  transition 
towards a circular economy requires an overall strategy and increased investment by 
businesses. 

(17)  Despite a recent uptick linked to the favourable economic climate, Austria has not yet 
managed to rekindle total factor productivity growth and to leave behind the decade-
long stagnation in this key driver of economic growth and competitiveness. Levers to 
support productivity growth relate to the digitalisation of businesses, company growth 
and  competition  in  services.  While  Austria’s  larger  businesses  are  adopting  digital 
technologies  and  business  models  at  a  good  pace,  its  smaller  businesses  lag  behind. 
Digitalisation  of  smaller  firms,  including  micro-enterprises,  is  particularly  important, 
as they form the backbone of the Austrian economy. The considerable take-up of the 
programme  ‘KMU  Digital’  shows  demand  and  interest  among  small  and  medium-
sized  enterprises  in  getting  advice  on  digitalisation.  Prolonging  and  expanding  this 
programme would help, as well as further policy focus on business digitalisation under 
Austria’s overall digitalisation strategy. 

(18)  Structural challenges remain for starting and scaling-up businesses in Austria, and in 
particular highly innovative companies. Austria lags behind comparable EU countries 
as  regards  employment  in  fast-growing  innovative  firms.  This  points  to  a  need  to 
improve the conditions for scaling up innovative businesses, which remains hindered 
by factors such as a venture capital landscape that is less developed and diverse than in 
‘Innovation  Leader’  countries.  Later–stage  funding,  such  as  in  the  forms  of  venture 
capital and access to public capital markets for scale-ups, is a bottleneck. The newly 
created small and medium-sized enterprises segment on the Viennese Stock Exchange 
is a step in the right direction. High-growth companies are crucial for spreading new 
technologies  and  business  models,  including  digital  ones,  and  thus  for  productivity 
growth.  

(19)  Austria has significant access barriers and restrictive rules on the exercise of business 
services and regulated professions. These include specific shareholding requirements, 
extensive  reserved  activities  and  interdisciplinary  restrictions.  Regulatory  barriers, 
notably  as  regards  the  daily  operation  of  shops,  contribute  to  the  relatively  weak 
development  of  Austria’s  retail  sector.  A  high  administrative  burden  remains  a 
pressing concern for Austria’s businesses. Continued efforts to reduce burdens and the 
planned  evaluation  of  Austria’s  Trade  Licence  Act  (Gewerbeordnung)  are  important 
instruments  to  improve  the  business  environment.  More  competition  in  the  service 
sector would also help address Austria’s challenges in spreading digital technologies 
and business models. 

(20)  The programming of EU funds for the period 2021-2027 could help address some of 
the  gaps  identified  in  the  recommendations,  in  particular  in  the  areas  covered  by 
Annex  D  to  the  country  report8.  This  would  allow  Austria  to  make  the  best  use  of 
those funds in respect of the identified sectors, taking into account regional disparities. 

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(21) 

In  the  context  of  the  2019  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Austria’s  economic  policy  and  published  it  in  the  2019 
country  report.  It  has  also  assessed  the  2019  Stability  Programme  and  the  2019 
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  socio-economic  policy  in  Austria,  but  also  their 
compliance  with  Union  rules  and  guidance.  This  reflects  the  need  to  strengthen  the 
Union’s  overall  economic  governance  by  providing  Union-level  input  into  future 
national decisions.  

(22) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2019  Stability 
Programme and is of the opinion9 that Austria is expected to comply with the Stability 
and Growth Pact.  

HEREBY RECOMMENDS that Austria take action in 2019 and 2020 to: 

1. 

2. 

3. 

Ensure  the  sustainability  of  the  health,  long-term  care,  and  pension  systems, 
including by adjusting the statutory retirement age in view of expected gains in life 
expectancy. Simplify and rationalise fiscal relations and responsibilities across layers 
of government and align financing and spending responsibilities. 

Shift  taxes  away  from  labour  to  sources  more  supportive  for  inclusive  and 
sustainable  growth.  Support  full-time  employment  among  women,  including  by 
improving childcare services, and boost labour market outcomes for the low skilled, 
in  cooperation  with  the  social  partners.  Raise  the  levels  of  basic  skills  for 
disadvantaged groups, including people with a migrant background. 

Focus investment-related economic policy on research and development, innovation, 
digitalisation,  and  sustainability,  taking  into  account  regional  disparities.  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 

9 

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

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