Austria

   

Economic Policies

#18
Key Findings
With an expensive but successful approach to pandemic mitigation, Austria’s economic policy falls into the upper-middle ranks (rank 18) internationally. Its score on this measure has improved by 0.1 point since 2014.

The government spent large sums of money during the pandemic to keep industries and businesses afloat, and implemented short-term measures designed to save jobs. While costly, these were largely viewed as successful, with the unemployment rate falling back below 5% in late 2021.

Government debt has risen to around 83% of GDP. However, that is lower than in 2015, and the trend is again downward. Tax revenues are strongly skewed toward personal income taxes. A recently passed ecological tax on CO2 has opened a new policy era, but has been criticized as being too weak to make a real difference.

Successive governments have obstructed implementation of the EU-wide financial-transaction tax. The country is an important market for money laundering and organized crime, with more prevention activities needed. A new government strategy enhances the state’s focus on science and research.

Economy

#12

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
7
The Austrian economic situation remains within the general European context, despite significantly greater political uncertainty. The former government, a coalition between the center-right ÖVP and the right-wing populist FPÖ, with a stable parliamentary majority, initiated some (neo-)liberal policies, such as a (comparatively) moderate liberalization of working time regulations. Those steps did not have much time to significantly impact on the country’s economic performance before the center-right coalition collapsed in early summer 2019. Following the coalition’s collapse, the non-partisan/expert government – appointed by the head of state on 3 June 2019 – refrained from formulating any specific economic policies.

The new ÖVP-Green government, which emerged from the September 2019 parliamentary election and took office on 7 January 2020, presented a complex governing program, containing several major economic policy reforms. However, as the coronavirus pandemic, which hit the country hard, set in less than two months after the government’s inauguration, economic policymaking since the beginning of 2020 has been in an almost permanent crisis mode. The government spent enormous sums of public money to support key industries, despite the recurrent coronavirus lockdowns (no less than four complete lockdowns by the end of 2021), and the question as to who will have to settle the bill has become a key political issue. Compared to the country’s performance in previous global crises (e.g., the global financial crisis of 2008/9), Austria is no longer a so-called outperformer.

However, in line with the general European trend during the pandemic, Austria followed Keynesian policies to keep the country running, and its industries and businesses afloat. In addition, short-time labor regulations have been put in place to avoid mass-layoffs. This approach has been rather successful in mitigating the effects of the crisis. In line with these policies, government debt has risen to around 83% of GDP, according to the latest official estimates by the Austrian national bank. But current debt is still below the level for 2015 and is predicted to fall significantly by the end of 2023 (back to around 78%, which is equivalent to numbers from the year 2017). In this regard, economic policies during the COVID-19 pandemic can be considered successful.

The government’s long announced ecological tax reform, passed in late 2021, was greeted by a mix of praise and skepticism from most observers.

Citations:
https://www.derstandard.at/story/2000123334475/oesterreich-von-wegen-gut-durch-die-krise
Debt-to-GDP values: https://www.oenb.at/isaweb/report.do?report=10.17

Labor Markets

#27

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
6
During the 18 months of the ÖVP-FPÖ coalition government (2017–19), some reforms were initiated that were seen by organized labor as a shift toward a pro-business, pro-market policy approach – directed against the tradition of Austrian neo-corporatism (“social partnership”). Labor argued that the government was attempting to reduce labor’s veto power in various fields of social affairs. However, as unemployment figures before and after the coalition’s collapse in May 2019 remained low due to an extended period of economic growth, any significant labor unrest has been avoided.

As in other countries, the coronavirus pandemic threw the Austrian labor market into turmoil, causing unemployment figures to rise to temporarily high levels by the end of 2020 / beginning of 2021. The ÖVP-Green government responded with a series of measures, most of which were designed to save jobs at any cost, though critics contended that the main focus of those financially costly governing activities had been on helping employers rather than employees through the crisis. Over the course of the pandemic, Austria – once a European top scorer in terms of employment figures – lost ranks and came to operate in the upper medium level of EU member states. At the end of 2021, the unemployment rate fell below 5% again.

Scattered survey research suggests that the ebbs and flows of the pandemic and the government’s labor market policies did not bring much change for long-term unemployed people and their self-perceptions.

As 2021 drew to a close, it became increasingly likely that there would be a new “degressive” regime of unemployment loans (with higher payments in the first months of unemployment) – a reform measure that had been on the government’s agenda since its inception. This may prove problematic given the large number of people temporarily laid off in Austria.

Citations:
Schönherr, Daniel, Zur Situation von Arbeitslosen in Österreich 2021, SORA, Vienna, August 2021,
https://www.sora.at/fileadmin/downloads/projekte/2021_SORA_21086_Momentum_Studie_Arbeitslosigkeit_in_der_Coronapandemie.pdf

https://www.wienerzeitung.at/nachrichten/politik/oesterreich/2126325-Alle-bis-auf-Neos-fuer-zu-Beginn-hoeheres-Arbeitslosengeld.html

https://kurier.at/mehr-platz/die-arbeitslosigkeit-ist-in-oesterreich-niedriger-als-vor-corona/401791631

Taxes

#31

How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
5
Overall, Austrian tax revenues are sufficient to provide the country with reasonable financial resources.

That said, Austrian tax policy is characterized by a significant bias, as the source of tax revenue is overwhelmingly skewed toward the personal incomes of the working population. As employees and self-employed individuals pay the maximum tax rate beginning at what is widely perceived to be a middle-class level of income, and the country lacks property and inheritance taxes, the system of taxation is unbalanced in terms of equity.

Austria’s overall 2021 score for competitiveness performance, according to the IMD database, was just as high as it had been in 2019, though the score for 2020 was the highest in many years. Importantly, Austria’s decent overall ranking (19th out of 62 countries for 2020) was in particular due to a high score for infrastructure (ranked 12th in 2021). This underscores the favorable assessment of the first indicator (above).

The steering function of the Austrian tax regime, its ability to incentivize changes in economic behavior to preserve the sustainability of natural resources and environmental quality, has long been notably weak. The ecological-social tax reform passed by the government in October 2021 marked the start of a new era (e.g., with the pricing of CO2). But the effects on smaller incomes and the overall ecological effects excepted remain limited. The newly established CO2 pricing regime has been criticized for being too soft to make a real difference in terms of shaping citizens behavior and many issues remain untouched by the reform (e.g., a lower tax for diesel, which will be abolished in 2022 according to the government). It remains to be seen if the government is willing to make full use of its tax-based steering capacity in ecological terms. In other areas, much remains to be done.

Citations:
https://worldcompetitiveness.imd.org/countryprofile/AT/wcy/#attractiveness

https://orf.at/stories/3231015/

Tax privilege for diesel will fall by 2022:
https://www.tt.com/artikel/30797854/dieselprivileg-in-oesterreich-wird-endgueltig-fallen-gelassen

Budgets

#23

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
8
In the past, Austrian budgetary policies followed a biased Keynesian approach. In times of low economic growth, the government engaged in extra spending, which it regarded as an investment in fostering growth. In times of high growth, however, available funds were not used effectively to prepare the government for poorer times.

The two major political parties, the SPÖ and ÖVP, which formed a long series of grand coalitions together, seemed reluctant to confront their specific clienteles (farmers and public servants for the ÖVP, and unionized workers and retirees for the SPÖ) and advance policies that might undermine their particular interests. In 2009, Austria enacted the Federal Medium-Term Expenditure Framework Act (BFRG). The BFRG introduced binding ceilings on future expenditures four years in advance on the basis of five categories that correspond to the main functions of the federal government. The formation of the ÖVP-FPÖ government in 2017 led to further budget consolidation.

The coronavirus pandemic, or the public measures launched to cope with it, marked an unprecedented challenge for the federal budget. With a budget deficit of 10.1% for 2020, this score was considerably higher than for the crisis year of 2009 and marked the highest yearly deficit since 1945. However, it is largely agreed that Keynesian-style public spending during the pandemic was key to keeping many industries and businesses afloat, and has thus contributed significantly to minimizing the economic impacts of the crisis.

In November 2021, the governing parties passed the budget for 2022, which projected a reduction in the overall deficit to 2.3% of the gross national product and a slightly reduced debt quota of 79.1%. Due to its strong economy and the overall economic outlook, it is fair to assume that Austria will follow a path of debt reduction over the medium to long term.

Citations:
https://www.diepresse.com/5909300/die-61-milliarden-euro-krise

Research, Innovation and Infrastructure

#11

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
7
Public research in Austria is largely centered on universities. However, this is a challenging environment, as universities in some areas are struggling with too many students, while researchers are often overwhelmed by teaching obligations. The Austrian Science Fund (Fonds zur Förderung der Wissenschaftlichen Forschung) is tasked with coordinating academic research, but has achieved only partial success in performing this task. Research funded by private corporations has little tradition in Austria and things are unlikely to change fundamentally anytime soon. Thus, the deficiencies in public-funded research cannot be counterbalanced by privately funded operations.

Links between industry and science are sound, and a large share of public research is funded by industry. In contrast to basic research, industry-sponsored research is mostly aimed at the applied sciences and does not necessarily affect universities. Integration within international networks is strong, and a high share of the labor force is occupied in science and technology-related occupations. Business R&D is particularly strong in niche markets, often performed by specialized small and medium-sized enterprises (SMEs). Other pillars of Austrian business research include large companies, affiliates of foreign corporations and the manufacturing sector.

Because of the coronavirus pandemic, no reliable/strictly comparable figures are available for 2020 and 2021. However, estimates of the research quota (Forschungsquote) show an increase from 3.18% in 2019 to 3.23% in 2020. However, this rise reflected to a considerable extent the pandemic-induced economic downturn. Of the total spending on research in 2020 (about €12.1 billion), 42% (i.e., about €5 billion) came from Austrian companies; slightly more than 8% accounted for the indirect research and experimental development (R&D) support (Forschungsprämie).

The government’s new research, technology and innovation (RTI) strategy, which was adopted late in 2020, marked a clear commitment on the part of the federal government to enhancing Austria’s innovative capacity through science and research. The planned actions identify different ways to further increase the efficiency and output of research investments, and encompass all areas and stakeholders of Austria’s innovation system. Digitalization is catching up, but is still fairly deficient in the public sector. The coronavirus crisis has highlighted serious deficits in the government’s data and digitalization policies as important information about coronavirus-related problems was not available.

Citations:
https://www.statistik.at/web_de/statistiken/energie_umwelt_innovation_mobilitaet/forschung_und_innovation/globalschaetzung_forschungsquote_jaehrlich/index.html

https://www.fwf.ac.at/en/news-and-media-relations/news/detail/nid/20210119

file:///C:/Users/c4021008/Downloads/FTI_pakt.pdf

file:///C:/Users/c4021008/Downloads/%C3%96sterreichischer%20Forschungs-%20und%20Technologiebericht%202021.pdf

Global Financial System

#15

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial System
7
As a member of the European Union, Austria’s economy is closely linked to the other members of the European Single Market. Austria has nevertheless sought to defend special national interests against the implementation of general standards such as banking transparency. Therefore, Austria has increasingly come under pressure from the United States and fellow European Union members to open its financial system according to standards widely acknowledged and respected by most other financial actors worldwide. This eventually led to the decision to essentially abolish banking secrecy, for which Austria was long known.

While Austria had once been particularly engaged in the promotion and implementation of an EU-wide tax on financial transactions (originally established in 2013), the ÖVP-led governments since 2017 have obstructed any major progress in the implementation of this new tax. The latest episode in this vein was the rejection of a Portuguese initiative in February 2021. However, the government has been careful to avoid the impression that it is complacent about the challenges of an increasingly complex global financial system and aims to keep international cooperation on those issues at bay. Thus, in June 2021, Austria applied to host the European Union’s new Anti-Money Laundering Authority (AMLA).

Austria continues to be an important market for money laundering and organized crime, especially for groups originating from southern Italy and Chechnya, which often assume the form of apparently legal activities. More emphasis needs to be put on preventing these activities.

Citations:
https://www.handelsblatt.com/politik/international/abgabe-auf-aktien-und-derivate-oesterreich-stemmt-sich-gegen-portugals-plaene-fuer-eine-finanztransaktionssteuer-in-der-eu/26951180.html?ticket=ST-1399092-lCqfu4mDx5b76s3zMnVK-cas01.example.org

https://orf.at/stories/3223106/

https://www.ilfattoquotidiano.it/longform/mafie-europa/mappa/austria/
https://www.laspia.it/mafia-in-austria-sequestrati-373-milioni-di-euro-frutto-di-riciclaggio/
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