Updated stability programme of Austria, 2005-2008 - Main contents

EN

Official Journal of the European Union

C 55/33

On 14 February 2006 the Council examined the updated stability programme of Austria, which covers the period 2005 to 2008.

In the last decade, the Austrian economy grew on average by 2,2 % per year in real terms, matching the growth rate for the euro zone as a whole. While job creation has been less dynamic than in the euro area, Austria still enjoys one of the lowest unemployment rates in the whole EU. In budgetary terms, the country achieved a ‘surplus or close-to-balance position’ of public finance in 2001 and 2002. However, recent developments have been characterised by a relapse into deficit (1,2 % and 1 % of GDP in 2003 and 2004 respectively).

In its opinion of 18 January 2005 on the previous update of the stability programme, covering the period 2004-2008, the Council invited Austria to achieve a higher degree of front-loading in the overall budget consolidation path and to lay out in greater detail the specific measures through which a significant budget consolidation could be achieved in the last two years of the programme.

According to preliminary results, in 2005 the general government deficit amounted to 1,7 % of GDP, which was 0,2 and 0,1 of a percentage point lower than planned in the updated programme and than forecasted by the Commission services respectively. The better-than-planned result was due to more favourable-than-foreseen developments on the revenue side in spite of substantial tax cuts. The planned expenditure was also exceeded, however, by a smaller margin.

The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2).

According to the update, real GDP growth is expected to pick up from annual rates of 1,75 % in 2005 and 2006 to 2,5 % in 2008. Slower than previously assumed growth in 2005 and 2006, resulting in a widening of the negative output gap, is attributed to less buoyant international trade and higher oil prices. The pick up of economic activity in the outer years of the programme is expected on the back of growing investment and private consumption. Both the short-term and medium-term scenario is based on plausible growth assumptions. However, expectation of employment gains would appear somewhat optimistic. Inflation is expected to decline from 2,3 % in 2005 to 1,5 % in 2008, which seems plausible.

The programme describes the budgetary strategy as ‘three-pronged’. First, it aims at a balanced budget over the economic cycle. Second, the strategy foresees a decline in the tax burden to below 40 % of GDP by 2010. Third, it envisages raising potential growth by fostering investment in research, education and infrastructure. The update targets a decline in the general government deficit from 1,9 % of GDP in 2005 to 0 % in 2008 and an increase in the primary surplus from 1,1 % of GDP to 2,7 %. Since revenue is expected to fall by 0,9 of a percentage point of GDP over the period 2005-2008, the planned consolidation is going to rely on expenditure restraint, with the expenditure-to-GDP-ratio dropping by 2,8 percentage points....