Budget Shock: Billion-Dollar Gap Larger Than Expected

The deficits of states and municipalities are expected to rise even further next year than previously assumed. According to the new Stability Pact agreed on Friday, the deficit of states and municipalities will rise to 1.13 percent of GDP in 2026. This is significantly more than the 0.9 percent that Finance Minister Markus Marterbauer (SPÖ) had assumed in mid-October. To maintain the overall budget target of 4.2 percent, the federal sector would need to reduce its deficit.

Forecast Deteriorated Within a Few Months

The forecasts have thus significantly deteriorated within a short period. In the double budget prepared in the spring, the Ministry of Finance had assumed a deficit of 0.7 percent of GDP for states and municipalities in 2026. In the fall, Marterbauer then stated that states and municipalities would perform 1.6 billion or 0.2 percentage points worse than assumed, and social insurance carriers 0.1 percentage points worse, but this would be compensated by a better result of the federal government of 3.2 percent. Now, the planned deficit of states and municipalities is expected to rise by another 0.2 percentage points. Accordingly, next year the federal government, together with social insurance carriers, may only contribute 3.07 percent of GDP to the deficit.

Deficits of States Expected to Rise Massively Next Year

In the following years, the budget deficit of states and municipalities is to be reduced according to the agreement now reached, but it remains above the original forecasts. In 2027, the deficit is expected to be 0.8 percent of GDP according to the Stability Pact and to be limited to 0.67 percent by 2029. However, this is still significantly above the apparently too optimistic forecasts of the financial framework presented in May. There, the Ministry of Finance had assumed a deficit of 0.4 percent for states and municipalities in 2027, 0.3 percent in 2028, and only 0.2 percent in 2029. Accordingly, in the following years, the federal government will likely also have to minimize its share of the deficit to adhere to the budget path.

Interest Regulation and Reimbursement Agreed

According to the newly signed Stability Pact, the federal states can take on and refinance their debts up to the agreed share through the Federal Financing Agency (OeBFA) without an interest surcharge. It was agreed retroactively that the interest surcharges already paid for loans taken in the financial year 2025 must be reimbursed by the federal government to the states.

ÖVP General Secretary Nico Marchetti praised the "productive cooperation between the federal government, states, and municipalities" for the new agreement in a statement on Saturday. All levels of government must take responsibility. "The Stability Pact is an important step on the way to a consolidated budget," said Marchetti.

(APA/Red)

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