Brief analysis 2: Without reforms, government debt will rise again from 2029
EcoAustria brief analysis of the National Council elections - Part 2: Without reforms, government debt will rise again from 2029
DI Johannes Berger
Head of the Labour Market and Social Security Research Section
As Austria has only undergone a few significant structural reforms in the area of economic and social policy over the past ten years, few major reform projects have been completed in the last, shortened legislative period. As a result, Austria's public finances continue to face major challenges. "Due to demographic trends, expenditure in the areas of pensions, health and care will rise sharply in relation to GDP by 2060. As these increases in expenditure will not be matched by corresponding funding without far-reaching reforms, Austria's public finances are not sustainable in their current state," says Tobias Thomas, Director of the economic research institute EcoAustria.
The analysis using EcoAustria's generation account model Debt Check projects all government revenue and expenditure into the future, taking into account demographic trends and reforms that have already been adopted. The results show that the debt ratio will fall below 60% in the coming years. Without structural reforms, however, it will rise again from 2029 onwards and breach the Maastricht limit again in 2033. After that, the debt ratio will continue to rise without reforms.
"No matter who wins the race in the National Council elections on September 29, in order to make Austria fit for the future, structural reforms for the sustainable management of public finances should be tackled with determination. Demographic developments in particular demand this. Life expectancy will rise from 82 years today to 88 years in 2060. A moderate adjustment of the retirement age by two years by 2060 can prevent the tax burden from continuing to rise, benefits from being further reduced beyond existing resolutions or the gaps in the pension system from having to be filled with government debt," explains Thomas.
The financing of long-term care faces similar challenges. "If care continues to be financed in a pay-as-you-go system via taxes or social security contributions, this will lead to the tax burden or debt increasing from generation to generation. It would be different in a system in which each generation saves for its own care risks. With an appropriate solidarity-based equalization, this would be intergenerationally fair and financially sustainable," says Thomas.
