First stage of tax reform – a step in the right direction

The former governing parties are considering adopting the first stage of the originally planned tax reform in the National Council. Among other things, this includes a reduction in health insurance contributions of almost EUR 900 million for low incomes. "Reducing the burden on the labor factor is a step in the right direction for more growth, prosperity and employment in Austria. In the medium to long term, gross domestic product would be around 0.2 percent higher than without this reform. Employees with lower incomes will benefit particularly strongly. In addition, employment among the low-skilled will be 0.5 percent higher. This creates more opportunities for consumption," says Tobias Thomas, Director of the economic research institute EcoAustria.

However, the first stage of the tax reform should not stop there. A simulation by EcoAustria using the PuMA macro model ("Public policy Model for Austria") shows that the reform package presented in May would increase gross domestic product by 1.6 percent in the longer term. "On the labor market, this means 50,000 more employees in the long term. In addition, the tax reform is 40-50 percent self-financing," says Thomas.

However, in addition to reducing the tax burden on employees and companies in Austria, which is high by international standards, further reforms are necessary to ensure that the burden does not increase again in the medium term. The main reasons for this are cold progression and demographic developments. EcoAustria Policy Note 32 concludes that further structural reforms, such as the complete abolition of cold progression, the linking of the retirement age to life expectancy and a demographically stable financing of care, are therefore necessary.