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Commission assesses stability programme of Austria
Reference:  IP/07/716    Date:  30/05/2007
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IP/07/716

Brussels, 30 May 2007

Commission assesses stability programme of Austria

Having examined its updated stability programme[1], the European Commission finds that Austria could be more ambitious and achieve its objective of a balanced budget more quickly than currently envisaged. The risks to the budgetary projections in the programme appear broadly balanced for 2007 and 2008, but for 2009 and 2010, the budgetary outcomes could be worse than projected. For this reason, the budgetary stance in the programme may not be sufficient to ensure that a balanced budget is achieved by 2010, as envisaged in the programme. The Council is expected to adopt an opinion on the programme on 10 July.

"The pace of Austria's budgetary adjustment towards a balanced budget should be strengthened, especially this year and next. Austria should make use of the good times that it is currently enjoying to put its budgetary position on an even sounder footing even though its public finances are considered at low risk in the long term. The limited improvement in the structural balance planned between 2007 and 2009 falls much short of the agreed 0.5% of GDP benchmark for euro-area countries", said Economic and Monetary Affairs Commissioner Joaquín Almunia.

Following the constitution of a new government in January 2007, Austria submitted a new update of its stability programme on 29 March 2007, covering the period 2006-2010. Based on a macroeconomic scenario that appears plausible, the programme's main goal is to reach a balanced budget over the cycle. The update projects the general government position to improve from a deficit of 1.1 % of GDP in 2006 to a surplus of 0.4 % in 2010. The programme also aims at reaching the medium-term objective (MTO) for the budgetary position of a balanced budget in structural terms (cyclically-adjusted and net of one-off and temporary measures) broadly by 2009 and to fully achieve it by 2010.

The risks to the budgetary projections in the programme appear broadly balanced for 2007 and 2008, but for 2009 and 2010, the budgetary outcomes could turn out less positive than projected, in particular since additional spending would be made over the programme period, while the expected efficiency gains in public administration remain uncertain. The programme also hints at the possibility of further tax cuts although they would be financed by the planned expenditure savings.

Government gross debt is estimated at 62.2 % of GDP in 2006, still above the 60 % of GDP Treaty reference value, but the programme projects the debt ratio to fall below the reference value by 2008 and to decline further to 56.8 % of GDP by 2009. Austria appears to be at low risk with regard to the sustainability of public finances.

Overall, in a context of robust growth prospects, the programme envisages slow progress towards the MTO through a relatively back-loaded adjustment that is based mainly on not-fully-specified expenditure restraint. There are risks to the achievement of the budgetary targets after 2008 and the MTO might not be reached by the end of the programme period. Government debt would approach the 60 % of GDP reference value in 2007 and continue to decline in subsequent years.

Therefore, the Council should invite Austria to exploit the good economic conditions and the lower-than-targeted deficit in 2006 to frontload and strengthen the adjustment towards the MTO, in particular by rigorously implementing expenditure restraint and by using any unexpected tax revenues for budgetary consolidation.

The Commission recommendations for Council Opinions are available at:

http://ec.europa.eu/economy_finance/about/activities/sgp/country/doctype/cr_en.htm

Comparison of key macroeconomic and budgetary projections

 
 
 
 
 
 
 
 
 
 
2005
2006
2007
2008
2009
2010
Real GDP
(% change)
SP Mar. 2007
2.0
3.1
2.7
2.3
2.5
2.6
COM May 2007
2.0
3.1
2.9
2.5
n.a.
n.a.
SP Nov. 2005
1.7
1.8
2.4
2.5
n.a.
n.a.
HICP inflation
(%)
SP Mar. 2007
2.1
1.5
1.6
1.7
1.7
1.8
COM May 2007
2.1
1.7
1.8
1.7
n.a.
n.a.
SP Nov. 2005
2.3
2.1
1.7
1.5
n.a.
n.a.
Output gap
(% of potential GDP)
SP Mar. 20071
-1.1
-0.3
0.1
-0.1
0.1
0.3
COM May 20075
-1.1
-0.2
0.5
0.8
n.a.
n.a.
SP Nov. 20051
-0.7
-1.1
-0.9
-0.5
n.a.
n.a.
General government balance
(% of GDP)
SP Mar. 2007
-1.6
-1.1
-0.9
-0.7
-0.2
0.4
COM May 2007
-1.6
-1.1
-0.9
-0.8
n.a.
n.a.
SP Nov. 2005
-1.9
-1.7
-0.8
0.0
n.a.
n.a.
Primary balance6
(% of GDP)
SP Mar. 2007
1.3
1.9
2.0
2.1
2.6
3.1
COM May 2007
1.3
1.6
1.8
1.7
n.a.
n.a.
SP Nov. 2005
1.1
1.2
2.0
2.7
n.a.
n.a.
Cyclically-adjusted balance
(% of GDP)
SP Mar. 20071
-1.1
-1.0
-0.9
-0.7
-0.2
0.2
COM May 2007
-1.1
-1.0
-1.1
-1.2
n.a.
n.a.
SP Nov. 2005
-1.6
-1.2
-0.4
0.2
n.a.
n.a.
Structural balance2
(% of GDP)
SP Mar. 20073
-1.1
-1.0
-0.8
-0.4
-0.2
0.2
COM May 20074
-1.1
-1.0
-1.1
-1.2
n.a.
n.a.
SP Nov. 2005
-1.6
-1.2
-0.4
0.2
n.a.
n.a.
Government gross debt
(% of GDP)
SP Mar. 2007
63.5
62.2
61.2
59.9
58.5
56.8
COM May 2007
63.5
62.2
60.6
59.2
n.a.
n.a.
SP Nov. 2005
63.4
63.1
61.6
59.5
n.a.
n.a.
Notes:
 
 
 
 
 
 
 
1Commission services calculations on the basis of the information in the programme with potential growth estimated at 2.3%, 2.3%, 2.4%, 2.4% and 2.3% respectively in the period 2006-2010.
2Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures 
3Deficit-increasing one-off and other temporary measures taken from the programme (purchase of military aircraft
of 0.2% of GDP in 2007, 0.4% in 2008 and 0.1% in 2009).
4Compared with the programme (see note 3), the Commission services’ spring 2007 forecast does not consider the purchase of military aircraft as one-offs, since it spreads over several years and does not substantially increase total government expenditure.
5Based on estimated potential growth of 2.3%, 2.0%, 2.2% and 2.2% respectively in the period 2005-2008.
6 Data on the primary balance in the programme and in the Commission services' forecasts are not directly comparable because of a different treatment of FISIM. Data in the programme follow the definitions required by the code of conduct. To be comparable with data in the programme, Commission data on the primary balance need to be adjusted by around 0.1-0.2% of GDP.
Source:





 
Stability programme (SP); Commission services’ spring 2007 economic forecasts (COM); Commission services’ calculations

[1] According to Council Regulation (EC) No 1466/97 on the strengthening of budgetary surveillance and the surveillance and coordination of economic policies (as amended by Regulation No 1055/2005), Member States must submit updated macroeconomic and budgetary projections every year. Such updates are called stability programmes in the case of countries that have adopted the euro, and convergence programmes in the case of those that have not yet done so. This regulation is also referred to as the 'preventive arm' of the Stability and Growth Pact.