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Austria: Rebuilding fiscal space, boosting productivity, improving social mobility and accelerating climate action will help drive resilient growth

FRANCE / AUSTRIA – Austria’s economy has performed well over the past decades. Its gross domestic product (GDP) per capita ranks 9th among the 38 OECD countries. However, fiscal deficits over the past several years have been large, as the government supported households and firms to cushion the impact of COVID-19 and energy price shocks. Continued reforms to boost productivity, improve social mobility and accelerate climate action would put the country on a stronger growth path and further improve living standards, according to a recent OECD report.

The latest OECD Economic Survey of Austria forecasts GDP growth to recover to 0.2 percent in 2024 and 1.5 percent in 2025 as domestic demand improves, after the contraction of 0.7 percent last year. The fiscal deficit, as a share of GDP, has declined from its pandemic peak but remained relatively high at 2.6 percent in 2023 and is projected to remain stable into 2025, though without improving. Inflation, which increased significantly following the surge in energy prices and has spread to core services, is expected to decline from 7.7 percent in 2023 to 3.7 percent in 2024 and 2.9 percent in 2025.

“Austria’s strong economy is set to recover from last year’s recession. Fiscal reforms, improving spending efficiency and pension sustainability, can help to boost the economy’s resilience to future shocks,” OECD secretary-general Mathias Cormann said, presenting the Survey in Vienna alongside Austria’s minister of finance Magnus Brunner, minister of labour and economy Martin Kocher and minister for climate action, environment, energy, mobility, innovation and technology Leonore Gewessler.

“Rebuilding fiscal space, boosting productivity by reducing barriers to private sector investment and upgrading digital infrastructure, improving social mobility through enhanced opportunities for women, socio-economically disadvantaged children and migrants, and accelerating climate action by increasing carbon prices and decarbonising transport and energy supply will help drive resilient growth in Austria.”

Beyond short- and medium-term expenditure reductions, fiscal policy needs to address long-term spending pressures. Expenditures on pensions, health care and long-term care are expected to increase significantly over the next decades due to population ageing. There is also potential to increase the efficiency of health care spending – for example by shifting health services away from hospital care and strengthening outpatient care. Shifting some labour taxation towards environmental taxes and towards recurrent taxation of immovable property would support sustainable growth.

Austria’s productivity growth has been slowing in recent years. Firm entry rates are the second lowest among EU countries, suggesting room to boost market dynamism.

The regulation of services could be eased, particularly the strict entry requirements into certain professional services. Facilitating the provision of risk capital, for example by removing the debt bias in the tax treatment of private investment, would promote innovation. Continuing the expansion of high-speed broadband would help maximise the benefits from the digital transformation.

Creating more opportunities for vulnerable social groups is needed to improve social mobility. Reducing the gap in skills for disadvantaged students and improving the integration of migrants will be essential to provide equal access to the labour market. Greater access to high-quality childcare and better-designed parental leave would help that paid and unpaid work become better balanced between women and men and reduce the gender pay gap.

Austria’s energy production has a low carbon content due to the country’s hydropower resources. However, domestic energy consumption relies heavily on imported fossil fuels. A clear and comprehensive green energy strategy would enable Austria to achieve net-zero emissions by 2040. Priorities should be increasing carbon prices, withdrawing inefficient subsidies, and reducing administrative constraints that hamper green investments. Adapting to the consequences of a changing climate will require substantial investments and the expansion of insurance coverage against natural disasters, particularly floods.

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