Government launches offensive: deficit crisis requires massive reforms!

Government launches offensive: deficit crisis requires massive reforms!

On April 2, 2025, an important meeting of top federal, state and local representatives took place to respond to the ongoing deficit crisis. Vienna.at reports that Federal Chancellor Christian Stocker (ÖVP) has presented a step-by-step plan for budget consolidation. The first aim of these measures is to reduce the deficit to three percent of gross domestic product (GDP), which meets the Maastricht criteria.

In the long term, the government is aiming for a “lean state”. This first meeting highlighted key objectives and the need for further discussions. It emphasizes a “whole-of-government effort” to reduce the deficit to one to two percent. Vice Chancellor Andreas Babler (SPÖ) spoke of the need to stick to the savings target, while Finance Minister Markus Marterbauer (SPÖ) emphasized the challenges of this task and referred to past crisis management.

Budget situation and challenges

Budget consolidation is complicated by a deficit of 4.7 percent of GDP in 2024. In addition, Austria's total debt ratio is 81.8 percent of GDP, of which 70.8 percent is attributable to the federal government. What is particularly striking is that Upper Austria is the only federal state with a positive budget balance in 2024, while Vienna comes first with a deficit of 1.67 billion euros, followed by Styria (525.5 million euros) and Lower Austria (486.5 million euros).

Another aspect of the discussion was the municipalities' contribution to consolidation, which is already visible through investment shifts and cost reductions. However, expert Karoline Mitterer from the KDZ warned of the negative effects of further savings on the quality of life and the range of services in the communities.

Economic prospects and national debt

In a broader context, a simulation from the bpb, that a steady annual deficit of three percent combined with nominal GDP growth of five percent can lead to a permanent debt-to-GDP ratio of 60 percent. This situation is in line with the Maastricht criteria, which stipulate a maximum of three percent of new debt per year.

Reducing the deficit can help reduce the debt-to-GDP ratio, provided GDP growth remains flat or does not fall more than the deficit. However, a high Keynesian multiplier could cause the debt ratio to rise despite a lower deficit if GDP growth were to fall sharply. In such a case, lower government demand may not be sufficiently replaced by private demand, which may lead to a reduction in innovation activity and overall economic growth.

The political discussion and the measures taken to reduce the deficit reflect the challenges facing the government. It remains to be seen how successful the fiscal consolidation measures will be and what impact this will have on the country's economic stability.