Taxes Rising, Deficit Growing: Austria Faces EU Criminal Proceedings
Austria is threatened with EU deficit proceedings - at 4.7 percent of GDP, the budget deficit is well above the Maastricht limit. To counteract this, the federal government is taking the first noticeable steps - above all, tax increases on tobacco, betting, e-vehicles, and court fees. However, experts warn that the road to budget consolidation is rocky and politically explosive.
The budget deficit in Austria increased to 4.7% of GDP in the previous year, indicating a high need for future savings and higher taxes. / Picture: © Wikimedia Commons, Håkan Dahlström from Malmö, Sweden, CC BY 2.0
Since April 1, numerous measures taken by the federal government to balance the budget have been in force. The tax increases are particularly noticeable: Tobacco products are becoming significantly more expensive - by up to 50 cents per pack for some brands. Heated tobacco will also become more expensive. The government hopes that the adjustments will generate around 50 million euros in additional revenue. The betting fee will rise from two to five percent - an increase of 150 percent. The Ministry of Finance expects this step to generate a further 50 million euros in the current year.
The government is also changing course in terms of climate policy: the motor-related insurance tax now also applies to electric vehicles, which were previously exempt. According to estimates, this step will generate an additional 65 million euros. Not only new cars are affected, but also vehicles that are already registered and electric motorcycles. This has led to criticism in environmental and mobility circles - the already sluggish transition to electromobility could be further slowed down.
The increase in court fees affects civil proceedings, divorces, company register entries, and land register entries, among other things. Armenak Utudjian, President of the Austrian Bar Association (ÖRAK), sharply criticizes the measure: access to justice will be made considerably more difficult for many citizens. At the same time, the judiciary continues to be understaffed and underfunded - the additional revenue will hardly reach it.
Tax incentives are also being cut: The VAT exemption for photovoltaic modules is being dropped - 20 percent tax will be due again. This is expected to flush 175 million euros into the coffers. The end of educational leave in its previous form is particularly drastic. Anyone who has not reached an agreement with their employer by the end of February will no longer be able to use this model. According to the government, this step alone will save 350 million euros.
Politicians discuss and react
Finance Minister Markus Marterbauer (SPÖ) is expecting an EU deficit procedure, but sees no reason to panic, as reported by ORF: “The procedure brings reporting obligations, but no direct savings requirements.” It is important not to further worsen the economic situation by making hasty savings. Austria is planning savings of around 6.4 billion euros in 2025 - more is not possible in the short term without jeopardizing growth and employment.
The FPÖ takes a different view. It fears a “loss of budgetary sovereignty” and increasing control by EU institutions. The procedure provides for close reporting in the event of an excessive deficit - as the EU Commission is expected to determine in May. In terms of content, however, it is up to the member states to decide whether to take countermeasures through spending cuts, tax increases, or reforms.
Meanwhile, former Finance Minister Magnus Brunner (ÖVP) defends the deficit with reference to the original forecasts by WIFO and IHS, as reported by ORF. They had expected growth of 1.2 percent - but the economy actually shrank by one percent. This deviation alone increased the deficit by one percentage point.
Economists: more time, but also more responsibility
Experts such as Margit Schratzenstaller (WIFO) and Philipp Heimberger (wiiw) argue that a deficit procedure could even ease the burden on Austria - as it would entail fewer consolidation obligations in the short term. “An austerity package by hook or by crook would exacerbate the crisis,” says Heimberger. It is important to use the time to tackle long-term structural reforms - for example in the pension system, in the area of subsidies, and the modernization of administration.
Both the WIFO and the Austrian Federal Financing Agency (OeBFA) do not believe that a deficit procedure will lead to rising financing costs for the state. Investors would rather pay attention to economic framework conditions and political capacity to act. Austria's interest burden in 2024 was around one percent of GDP - in 1995 it was still 3.5 percent.
Saving and austerity
The government's first budget restructuring measures will directly affect the population - through higher consumer taxes, more expensive administrative services, and the elimination of subsidy models. But even if the goal is clear - to avoid or at least mitigate an EU deficit procedure - the current strategy is probably not enough. The coming months will show whether the government is prepared to go beyond selective tax increases and introduce bold, structural reforms. Otherwise, there is not only the threat of an EU warning but also a lasting loss of confidence - both domestically and in terms of foreign policy.