Austria: There is currently a 14 billion hole in the budget

Even during the election campaign, the warnings of a huge budget hole that was foreseeable could not be ignored. Economic growth forecasts constantly had to be scaled back. Contrary to all plans when drawing up the budget for 2024, Austria’s economy is shrinking for the second time in a row this year.

This leaves a deep mark on the state budget, no question.

The future federal government, whatever its composition, will have a very difficult start. There is a yawning emptiness in the state treasury.

On top of that, there is a risk of an EU deficit procedure. It had long been foreseeable that Austria’s budget deficit would be well above the permitted limit of three percent – and this will also be the case next year. The SPÖ said during the election campaign that Austria would have to save around 0.5 percent of GDP annually in order to be compatible with the EU’s deficit and debt rules.

Fiscal Council President Christoph Badelt became more specific. He named a deficit for 2024 of 3.4 percent and a savings requirement of around 2.5 billion euros annually over four years – ten billion in total. The job of the next finance minister won’t be fun at all, Badelt said back in the summer. He was criticized for this – not least from the Ministry of Finance.

After various calculations – for example by the National Bank – Badelt now feels vindicated and says to the KURIER: “We warned of a deficit of 3.4 percent. Due to the dismal economic situation, this is likely to be revised downwards.”

Thought transference or not? On Thursday afternoon, the Ministry of Finance also drastically revised its deficit forecast downwards from the original 2.7 and later 2.9 percent to 3.3 percent. Today, Friday, the experts from WIFO and IHS will follow with their new forecasts for 2024/2025. And the Neos are also sounding the alarm. The Pinks want to be in the next government and are therefore extremely interested in a collapse in the cash register.

Lack of scope

Lukas Sustala, head of the Neos Lab think tank, tells KURIER: “We have an enormous need for renovation. That’s why we constantly insist on reforms. An ever larger part of the budget is needed for pensions and interest. This means there is no scope for future spending.”

A look at the current budget execution shows: Between January and August 2024, the budget deficit is at a record level with a current deficit of 14 billion euros. In the same period last year it was “only” six billion euros. And even in the Corona year 2020, the deficit up to August was 12.7 billion, smaller than this year.

The spending problem

According to Sustala, the main reason for the enormous deficit is the sharp increase in expenses, which increased by 13 percent compared to the previous year – and thus far exceeded the dampened income due to the recession (plus two percent).

The federal government has already spent 25 billion euros this year on the three expenditure items pension insurance, civil service pensions and interest. That’s almost 59 percent of the federal government’s revenue. In 2019 the value was 47 percent.

Late admission

It’s not just the previous opposition parties that have constantly warned about the budget gap. Most recently, in mid-September, the National Bank also forecast a deficit of more than three percent: a minus of 3.1 percent for this year and a minus of 3.3 percent in 2025. The new figures from the Ministry of Finance confirm the fears – late, but still .

The reasons for this are a lack of economic recovery, the effects of the flood disaster, which are difficult to estimate, and the increase in the climate bonus, says the ministry. In March the deficit forecast was 2.9 percent.

The result is clear: If billions of euros in new debt are incurred every year, the mountain of debt will also grow to enormous heights. In relation to annual economic output, the debt ratio will be 79.3 percent of GDP this year (2023: 77.8 percent).