Policy Note 32: Tax reform brings 50,000 more jobs

The federal government recently passed a comprehensive tax reform for the years 2020 to 2023. "The tax reform will have a positive effect on growth, prosperity and employment in Austria. By reducing the current high tax burden, gross domestic product will be around 1 percent higher by the end of the legislative period than without the reform, and even 1.6 percent higher in the long term. On the labor market, this means 50,000 more employees in the long term," says Tobias Thomas, Director of the economic research institute EcoAustria. "The reform will also have a strong impact on the disposable income of private households, thereby increasing prosperity and consumption opportunities for employees," says Thomas.

The proposals in the Council of Ministers' presentation on the reform measures for the years 2020 to 2022 envisage a reduction in the tax burden of EUR 6.5 billion per year. The largest chunks are accounted for by a reduction in social security contributions for low-income earners, a reform of wage and income tax rates and a reduction in corporation tax. In addition, a further reduction in corporation tax of EUR 800 million to 21% is planned for 2023. The total relief therefore amounts to EUR 7.3 billion. In addition, EcoAustria's simulation with the PuMA macro model ("Public policy Model for Austria") shows that the tax reform is 40-45% self-financing.

The tax burden in Austria will fall as a result of the reform package. However, without further reforms, the tax burden will rise again. This is due to cold progression and rising public expenditure in the areas of healthcare, nursing care and pensions as a result of demographic trends. Further structural reforms, such as the complete abolition of cold progression and the linking of the retirement age to life expectancy, are therefore necessary, concludes an EcoAustria policy note published today.