Budgethearing: Statement by EcoAustria Director Monika Köppl-Turyna for NEOS
Vienna, June 3, 2025: The double budget provides for savings of 6.4 and 8.7 billion euros. Despite these measures, the budget deficit remains high at 4.5 and 4.2 percent of GDP. Without consolidation, it would even be 5.8 percent. However, the slight improvement in the Maastricht balance next year is not due to the federal government, but to social security and the provinces and municipalities.
Public pensions remain the main driver of the deficit development. Transfers to the pension insurance alone will increase by a total of almost EUR 3 billion over the two years. For retired federal civil servants, the increase amounts to EUR 1.2 billion over the two years.
The debt ratio will rise to just under 85% this year and over 86% next year - a far cry from the Maastricht target of 60%. Accordingly, the federal government's interest burden is also continuing to rise sharply: an additional EUR 1 billion this year and EUR 560 million next year. This shows the consequences of a lack of financial discipline in the past. In comparison: Germany has significantly reduced its debt ratio from a similarly high level since 2012, which has reduced the interest burden accordingly.
The salary agreements for federal employees will lead to an increase in personnel expenditure of just under 5%. In view of the current economic situation and the exemplary role of the public sector, a renegotiation of the wage and salary agreements for next year would be welcome.
The consolidation measures are a step in the right direction. Funding cuts are sensible, but should be based on clear targets and their continuation should be continuously evaluated or abolished. It is positive that the education sector has been largely spared, as has the opportunity bonus for socially challenged schools.
Some measures, such as higher dividend payments by state-owned companies or the bank levy, only have a short-term effect. The increase in the retirement age for the corridor pension also brings little relief in the long term - later retirement leads to higher pension entitlements.
The economic development in recent years has meant that Austria has primarily increased its spending. The share of public spending in GDP increased to over 56% in 2024. This is almost as high as in the pandemic year 2020 (57.3%) and more than 7 percentage points higher than in 2019. This is a dramatic increase that, according to the strategy report, will hardly be reduced by 2029. However, the tax ratio is also expected to remain stable at a high level of over 45%. This will mean that the already significantly declining competitiveness of Austrian companies will not improve. Although the revenue side will be supported by the stable labor market, structural problems will remain unsolved.
The budget pays far too little attention to two key issues: firstly, demographic-related expenditure and secondly, structural reforms - particularly in the horizontal and vertical funding streams.
The government program provides for measures to curb pension expenditure which, together with an employment package for older people, are expected to achieve savings of EUR 1.45 billion and EUR 2.9 billion in 2028 and 2031 respectively. By comparison, retiring one year later would reduce payments by around EUR 3.5 to 4 billion. A pension increase of one percent would cost around 700 million euros per year. One measure in the government program is to make access to the corridor pension more difficult Empirical analyses and initial experience with the gradual increase in the statutory retirement age for women show that stricter access regulations do indeed have a significant impact on retirement and employment.
The planned tightening of the corridor pension can therefore reduce expenditure in the short term. In the long term, however, the effects are extremely limited: as later retirement is associated with a higher pension due to the lower deductions, the financial effects are largely offset. It is also questionable why stricter access conditions are only envisaged for the corridor pension and not also for the heavy work pension or long-term insurance pension, which have significantly lower deductions. Although the announced measures are a step towards consolidation, they do not solve the current budgetary problems or the fundamental challenge of long-term sustainability. A higher statutory retirement age would be much more effective in securing the pension system in the long term. One possibility would be to link this to rising life expectancy - an approach of this kind was introduced some time ago in several OECD countries such as Denmark and Finland.
A second key lever is increasing efficiency in administration, education and healthcare. Public administration is particularly expensive in Austria: in 2024, expenditure (excluding research and interest payments) amounted to EUR 17.9 billion - almost 4 percent of economic output. According to a benchmarking analysis with data for 2021, the efficiency potential is 2 to 3 billion euros.
Current expenditure in the education sector amounted to around 13.6 billion euros in 2021 - with a very high cost per pupil:in. In an international comparison, Austria is far ahead in terms of expenditure, but the PISA results show a great need to catch up. The efficiency potential here is up to 4 billion euros. The drop in performance among children from educationally disadvantaged backgrounds is particularly striking - the opportunity bonus is therefore important, but must be accompanied by savings in other areas, such as the closure of small schools. This needs-based funding would only be successful if it is accompanied by further reforms, including above all a reform of school administration and school governance and the introduction of a common school with internal performance differentiation and individualization. The opportunity bonus must not only be implemented according to "input".
Although a lot is spent on healthcare in Austria, despite a more favorable population structure compared to the EU, the results are in the middle of the pack. The efficiency potential is up to 5 billion euros. countries if you take the Netherlands or France as a benchmark. This shows that lower expenditure can go hand in hand with better care. Austria's strong focus on hospitals is inefficient - the operation of many small hospitals is often politically motivated and not a medical necessity. From a systemic perspective, the major barriers to efficiency remain, in particular mixed financing, fragmentation, parallel structures, multiple diagnoses and the untapped potential of digitalization.
Finally, a reform of federalism is needed. In Austria, there is spending autonomy at regional level without responsibility for revenue. The allocation of tasks to the individual levels also shows room for improvement. These mixed competencies lead to a lack of transparency, inefficient structures and conflicting objectives at the individual levels. This area is in urgent need of reform. The key lever is also a task-oriented financial equalization system that better reflects the uneven regional distribution of the burden of demographic-related expenditure and a significant strengthening of the government's own levies.
Conclusion: individual measures are not enough. Structural reforms are needed - in pensions, administration, education, healthcare and federalism - this is politically challenging and will not happen overnight. However, it is essential for Austria as a business location, as the world has changed considerably.
