Policy Note 36: Strengthening the business location for greater prosperity
Following the economic crisis, Austria's performance was rather weak in an international comparison and it lagged behind comparable economies in the eurozone in terms of growth. The trend reversed in 2017. However, current forecasts predict a general cooling of the economic climate. "Given the unclear outcome of Brexit and global trade conflicts, it is all the more important to strengthen Austria's competitiveness as a business location locally and thus lay the foundations for greater prosperity and employment," says Tobias Thomas, Director of the economic research institute EcoAustria.
In a study for the Federal Ministry for Digital and Economic Affairs, EcoAustria examined the state of Austria as a business location. International rankings on competitiveness reveal considerable areas of improvement. These include the high burden of taxes on earned income, inefficiencies in public administration, problems in the labor market, particularly due to the lack of sufficiently qualified workers, and a lack of flexibility, including in working time regulations and bureaucratic hurdles. "In recent years, reform steps have been taken or at least begun in many of these areas," says Thomas. These include the reduction of non-wage labour costs, the introduction of the family bonus, measures to strengthen e-government, the abolition of the first gold-plating regulations and the implementation of greater flexibility in working hours through the new Working Hours Act. However, only the first steps were taken with many reforms. Others were not implemented at all. This also applies to the burden on labor and companies, which is still very high by international standards. "In terms of the tax burden, Austria is one of the top countries in Europe. Employees receive too little of the fruits of their labor and companies are deprived of much scope for investment," says Thomas.
The simulation by EcoAustria using the PuMA macro model ("Public Policy Model for Austria") shows that with the planned tax reform of May 2019, real net incomes would already have been around 3% higher in 2025. In the longer term, employment would be around 1% higher than without the tax reform. This corresponds to an increase in employment of just under 50,000 people. This would be associated with an unemployment rate that is over 0.5 percentage points lower. The employment trend would also have a positive effect on private consumer demand, which would increase significantly by 3.5% in the long term. Economic output would be EUR 6.7 billion or 1.6% higher in the longer term. The stronger growth resulting from the reform package will also increase tax revenues, meaning that the reform would be 40-50% self-financing.
The remainder should be financed through efficiency potential in public spending. In the areas of education, health, care, housing subsidies and public administration alone, there is a potential for efficiency of EUR 6 billion in a comparison of federal states, which could be leveraged without worsening public services for citizens. In an international comparison, the efficiency potential identified is even higher, according to the policy note published today by EcoAustria, which summarizes the key findings of the study for the Federal Ministry for Digital and Economic Affairs.
