Study: Energy Costs, Public Levies, and Austria as an Economic Location

How can Austria’s competitiveness be strengthened and growth and employment be promoted in a sustainable manner? A study by EcoAustria, commissioned by oecolution austria, examines the impact of taxes and energy costs on the Austrian economy and analyzes which relief measures yield the greatest economic benefits. 

The analysis shows that Austria faces a twofold challenge. On the one hand, despite the easing of tensions following the energy crisis, energy prices remain above pre-crisis levels and higher than those of key international competitors. On the other hand, with a tax-to-GDP ratio of 44.3 percent, well above the EU average of approximately 41 percent, Austria ranks among the countries with the highest tax and social security burden within the European Union. Earned income is particularly heavily taxed, which undermines work incentives, employment, and additional value creation. 

EcoAustria is examining several tax relief scenarios. In addition to reducing electricity and natural gas taxes to the European minimum level, the study simulates three tax policy measures, each amounting to one percent of GDP: a reduction in non-wage labor costs, a reduction in payroll and income taxes, and a reduction in value-added tax. 

The results show that reducing payroll and income taxes yields the greatest direct effects on growth. A tax cut equivalent to one percent of GDP increases real gross domestic product by about 0.75 percent in the short term and by just under 1.2 percent in the long term. At the same time, approximately 38,000 additional jobs are created in the long term. 

Reducing non-wage labor costs also has significant positive effects. In the long term, employment will increase by about 26,000 people and economic output by about 0.8 percent. When self-financing effects are taken into account — resulting from higher employment, rising incomes, and additional public revenue — reductions in non-wage labor costs yield the strongest employment and growth effects per euro of net fiscal cost in the long term.

Reducing energy taxes to the EU minimum level would also provide a positive boost, but its impact would be significantly weaker than that of the tax reforms examined, due to the smaller scale of the tax relief. 

The study thus underscores the importance of a tax structure that promotes growth and employment. From EcoAustria’s perspective, earned income and non-wage labor costs in particular should be reduced to make work, full-time employment, and additional working hours more attractive. At the same time, permanent tax cuts should be accompanied by more efficient public spending to ensure the long-term sustainability of public finances.