Policy Note 37: No time for a lack of budget discipline

Numerous resolutions are currently being passed in the National Council, many of which have an impact on the budget. The national debt ratio has recently fallen significantly, partly due to the positive economic development of recent years. In 2018, it amounted to 73.8 percent. In 2023, the ratio will fall to below 60 percent and thus meet the Maastricht criterion for the first time ever. Nevertheless, Austria continues to face major challenges with regard to the sustainability of public finances. "Due to demographics, expenditure in the areas of pensions, health and care will increase significantly by 4 percent of GDP by 2060. Without further reforms, this will lead to the public debt ratio rising again as early as 2029," says Tobias Thomas, Director of the economic research institute EcoAustria.

However, especially against the backdrop of low interest rates, there are repeated calls in the public debate for budget discipline to be relaxed. EcoAustria has examined for the Federal Ministry of Finance how lower interest rates or a more favorable labor market situation would affect the sustainability of public finances in the long term. The results show that this is no reason for less budget discipline. Even if the interest rate or the unemployment rate is lower than in the baseline scenario, the demographically induced increase in public debt is only postponed by a few years. A deviation from the stability program would in turn exacerbate the situation of public finances in the medium and long term. Additional primary expenditure amounting to 0.5% of GDP would mean that the Maastricht limit of 60% would not be breached, but only touched, and the debt ratio would then rise all the more sharply.

"Even low interest rates are no reason to deviate from the stability program. Against the backdrop of demographic change, there is no time to relax budgetary discipline," says Thomas. In fact, considerable further efforts are needed to ensure the sustainability of public finances. These include measures to make pensions and care funding more demographically sustainable as well as greater efficiency in public spending, according to the policy note published today by EcoAustria.