Red alert: Austria's debt will explode to 91% by 2029!

Red alert: Austria's debt will explode to 91% by 2029!

Austria is facing a significant financial dilemma, despite announced austerity measures. How oe24 According to reports, debt watchdogs are skeptical about the effectiveness of the current consolidation measures. The Fiscal Council predicts that additional savings of 2.2 billion euros will be required by 2029 to achieve an acceptable deficit.

The current financial situation shows a worrying development: the deficit is unlikely to fall below 4% of GDP by 2029. In 2024, a deficit of 4.7% of GDP is expected, while the deficit in 2023 is 4.3%. Even the progress that the Treasury is targeting for 2026, with a decline to 4.2% of GDP planned, appears ambivalent. The press highlights that the Maastricht ceiling of 3% of GDP is clearly exceeded. The Fiscal Council also emphasizes that the Finance Ministry's forecasts are more optimistic than its own estimates.

Necessary structural reforms

The Fiscal Council urgently calls for the introduction of structural reforms in order to deal with the high deficits and the rising debt ratio. The cycle of rising debt is alarming: the debt ratio is expected to rise from 84.6% of GDP this year to 91.1% by 2029. This development contradicts government forecasts, which aim for a deficit below the Maastricht limit of 3% by the end of the decade.

The reason for the persistently high deficits is the increase in spending in recent years, in particular inflation-related salary increases in the public sector and the indexation of social benefits. If no fiscal consolidation measures are taken, the deficit could rise to 5.4% of GDP by 2026. The Ministry of Finance reports that total spending in 2023 will be 248.8 billion euros, an increase of 5% of GDP.

Outlook and challenges

The economic conditions are further exacerbating the financial difficulties. According to WIFO, minimal economic growth of just 0.2% is forecast for 2024, while the inflation rate is expected to fall from 11.2% in 2023 to 3.8% in 2024. There is a forecast trend for the coming years with stagnating growth and persistently high deficits, which limits the government's scope for action.

In order to sustainably reduce the debt ratio, a budget deficit of around 2% of GDP is considered necessary. A further deficit of over 4% could lead to problems for Austria not only in the national budget but also at the European level. The EU Commission is already planning an excessive deficit procedure, the formal recommendation of which is expected on June 20.