Austria's Growing Budget Deficit

by Ulrika Lomas, Tax-News.com, Brussels

24 April 2009

Finance Minister Josef Proell introduced the budget to parliament on Tuesday, stating that the global financial and economic crisis will push the country into its first recession since the 1970s oil crisis.

The Austrian budget deficit will widen from 0.4% of GDP last year to 3.5% this year and could increase to 4.7% in subsequent years. Proell said the deficit will still be lower than the average for the euro zone, which the OECD has in March forecast to reach 5.4% this year and 7% next year. Under European Union rules, member states face the possibility of stiff penalties for running a deficit ratio higher than 3.0%.

Public debt was set to rise to 68.4% of GDP this year and to as much as 78.5% of GDP by 2013, compared with 62.5% last year, significantly affected by state capital support for the banking system, for which the country has set aside EUR15bn (USD19.4bn). EU countries are required to keep overall debt to less than 60% of GDP.

Tax revenues will be reduced by EUR3.7bn, or 5% this year, partly because of falling corporate taxes, and partly because of tax cuts Austria adopted to alleviate the economic crisis, for which an additional EUR4bn will be spent on stimulus measures this year and next.

The Austrian banks' exposure to emerging Europe, which equates to at least 70% of GDP, has led to concerns that a massive government bail-out may be needed, driving up the price of Austrian government debt relative to German debt in past months.

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