Brief analysis 10: Tax reform and zero deficit are achievable

The first meeting of the new federal government is just around the corner. One topic will be the planned tax relief for employees and companies, as the first stage of the reduction in income tax from 25% to 20% is set to take place in 2021. Overall, the federal government plans to reduce the first, second and third stages of the tax rate to 20%, 30% and 40% respectively. Corporation tax is also to be reduced from 25% to 21%.

The tax burden on labor and companies in Austria is still very high by international standards. As a result, employees with an average income currently only receive a good half of what companies pay for an hour's work. This restricts the consumption possibilities of private households. Corporation tax has been at 25 percent for almost 15 years. In the meantime, however, many countries have reduced corporation tax. This means that Austria is now well above the EU average of around 21 percent. This is a disadvantage for the business location.

The planned reduction in income tax in the first stage of the tax rate to 20% has a relief volume of EUR 1.6 billion, while the second and third stages to 30% and 40% respectively have a volume of EUR 2.3 billion. This results in a total reduction in income tax of EUR 3.9 billion. The reduction in corporation tax in turn has a relief volume of 1.8 billion euros. Across both types of tax, this results in a total relief volume of around 5.7 billion euros. The reform is 40 to 50 percent self-financing thanks to the additional growth triggered and the associated additional revenue.

In addition, there is great potential for efficiency in public spending and therefore opportunities to make savings without worsening services for citizens. The EcoAustria Europe Benchmarking shows that Austria is a European leader in public spending in many areas, but often only achieves mediocre results in terms of impact. For example, Austria spends around EUR 9,350 per pupil per year on education, adjusted for purchasing power. This gives Austria 491 points in the current OECD PISA test. In comparison, the Netherlands achieved 502 PISA points with 1,100 euros less per pupil and year. The difference in efficiency is even more striking when compared to Finland: With total expenditure of around 1,650 euros per pupil less than Austria, the Finns achieve a full 516 PISA points and thus a top European result. There is similar efficiency potential in other areas of public spending, such as administration or health. If it is possible to leverage even part of this efficiency potential in public spending, then even better services for citizens are possible at significantly lower costs. Against this background, the tax reform and the planned increase in the family bonus can be implemented together while maintaining the zero deficit, according to the conclusion of a brief analysis published today by EcoAustria.