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IMF Sees Little Room For Austrian Tax Hikes

by Mike Godfrey,, Washington

02 July 2010

The International Monetary Fund (IMF) sees little scope for additional tax increases in Austria because the country's tax burden is already relatively high.

In an Article IV consultation with Austria, the IMF said that "raising a few taxes that are currently low in an international comparison (property tax, oil tax) could bring additional benefits. However, the overall tax burden and taxation of labor are already high".

The IMF thought consolidation measures could consist of expenditure reductions without weighing unduly on growth, as Austria's spending is elevated in international comparison and with outcomes not always commensurate. The IMF suggested as examples, calibrating hospitals capacity to actual needs to reduce costs, and abolishing unjustified disparities and early retirement loopholes to increase sustainability and equity in the pension system.

The IMF has recommended that Austria's deficit should be brought below 3% of GDP by 2013 and further reduced thereafter.

Austria has had more favorable deficit and debt developments than the Euro area average, with a deficit expected to be 4.75% of GDP in 2010 and debt around 70%, but the IMF says these levels are not sustainable.

The IMF approved a continuing supportive stance in 2010 to underpin the recovery, but recommended that consolidation should start as planned in 2011. Given the moderate recovery and economic uncertainties, the IMF thought a lack of front-loading was justifiable, but additional consolidation measures may be needed either to ensure that the target is respected or if market sentiment deteriorates.

With a debt-to-GDP ratio expected to increase to close to 75% of GDP (an increase of 15 percentage points from pre-crisis level) and decrease only after 2013, the IMF thought a clear commitment to lasting consolidation and sustainability should be signaled early on.

The IMF recommended a well-designed mostly expenditure-based consolidation, with participation of all government levels, which could minimize the effects on growth and enhance sustainability.

TAGS: tax | economics | property tax | fiscal policy | retirement | budget | International Monetary Fund (IMF) | Austria

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