"Shocking Figures": Government Spending Causes Deficit to Rise to 4.7% of GDP

This was announced by Statistics Austria at a press conference on Monday morning. Thus, the Maastricht limit of three percent was clearly missed. The national debt ratio rose to 81.8 percent. The reason for this development is that the revenue increase of 4.9 percent was significantly lower than that of expenditures (8.8 percent).

The increase in the deficit compared to 2023 is enormous. At that time, the deficit was still at 2.6 percent of GDP and thus within the Maastricht rules. The 4.7 percent of the previous year corresponds to an absolute figure of 22.5 billion euros. The public debt stood at 394.1 billion. This increased the debt ratio (the ratio of national debt to nominal economic output) from 78.5 to 81.8 percent. According to EU guidelines, only 60 percent would be allowed.

As Statistics Austria head Tobias Thomas explained, the state would have had to spend eight billion less to stay below the Maastricht limit of three percent. This is also relevant for the now expected EU deficit procedure.

For Finance Minister Markus Marterbauer (SPÖ), the situation is also "serious" and a deficit procedure is probably unavoidable. With this "very negative starting value," an EU deficit procedure seems unavoidable to him, as Marterbauer explained in the Ö1 "Mittagsjournal." He does not see how more than the planned 6.4 billion could be saved this year. This already represents a "massive effort." From his point of view, it is not possible to fall below the Maastricht limit of three percent in the short term without weakening the economy.

For budget consolidation, "everyone will have to contribute," Marterbauer stated in a statement. The Finance Minister recalled that the deficit during the banking crisis in 2009 was 5.38 percent of GDP. For Finance State Secretary Barbara Eibinger-Miedl (ÖVP), "confidence, cohesion, and building bridges" and a "joint effort" by the federal government, states, and municipalities are needed in economically challenging times. NEOS State Secretary Josef Schellhorn wants to ensure rapid relief from "excessive bureaucracy."

Federal, State, Municipalities, and Social Insurances in the Red

Looking at the individual public authorities, a deficit is evident at first glance everywhere. For the federal government, it went from minus 1.9 percent of GDP to minus 3.5 percent, for the states excluding Vienna from minus 0.1 to minus 0.4 percent, and for municipalities and social insurance carriers, the rounded percentage remained at minus 0.5 and minus 0.2 percent, respectively, but in absolute terms, there was also a higher deficit here.

However, it is also evident for the municipalities that they, excluding the federal capital, balanced solidly: "The municipal result is driven by Vienna," explained Kerstin Gruber from the Directorate of Economics at Statistics Austria. While the other municipalities cumulatively improved their result in 2024, it deteriorated in Vienna by almost 400 million. Gruber partly attributed the development to a high level of offensive measures such as the kindergarten initiative and subway expansion.

Other states were also deep in the red, especially Styria with over 525 million euros, but also Lower Austria with 486 million. Only Upper Austria was in the black with just under 30 million. Looking at the overall debt level, however, the main burden lies with the federal government: 86.6 percent of the total debt "belongs" to it.

Weak Economic Development

According to Statistics Austria, the weak economic development has a strong influence on the negative trend. Nevertheless, revenues have grown despite this. The reason for this is the high wage agreements, which in turn resulted in higher revenues from social security contributions and income tax. Overall, the revenue ratio is already at 51.6 percent. In the EU, only France and Finland are in this range.

The problem is that expenditures are rising even more. The main reasons for this are salary agreements and pensions. About four out of ten euros go into social security. Of this, almost two-thirds flow into the category of old age. Health expenditures also remain a significant factor, especially as they continue to rise steeply even after overcoming the coronavirus crisis, by 6.3 percent last year. Defense spending is still relatively low, at 0.6 percent of GDP until 2023. The slight increase last year to 0.7 percent is primarily due to higher wage agreements.

Budget: For Wifo Director Felbermayr, Figures are "Shocking"

Wifo Director Gabriel Felbermayr described the figures on the overall government deficit published by Statistics Austria on Monday as "shocking." With a deficit ratio of 4.7 percent, an EU deficit procedure is "probably unavoidable, because the figures are likely to be bad in 2025 as well," said Felbermayr: "With the deficit procedure, the spotlight of the markets and the Commission will be on Austria."

Now a "serious, ambitious consolidation" is necessary, argued the expert. The federal government, states, municipalities, and social security must present "constructive plans," said Felbermayr: "In their own interest." All corporations are required to act. Wifo itself had assumed a deficit of 4.1 percent in its forecast presented last week.

Anderl Sees Responsibility with Previous Government

AK President Renate Anderl sees "clear responsibility" for the "surprisingly high" deficit: "The previous governments relied on reducing taxes and levies without counter-financing. Economic policy let inflation run through (...) and did not intervene in prices," criticized Anderl on the sidelines of a press conference on Monday. In the current situation with weak economic conditions, continuing to rely on "radical austerity measures" would be "absolutely the wrong way." First, the recession must be overcome, then the budget can be consolidated - for which Anderl also demands higher contributions from the wealthy.

Similar criticism comes from the Freedom Party: "The ÖVP has driven Austria's budget into the wall with open eyes!" said the blue finance spokesman Hubert Fuchs. The development must have been known to former Finance Minister Magnus Brunner (ÖVP), after all, the figures are available every month. Nevertheless, Brunner did nothing about it. Fuchs suggested bringing a ministerial indictment against Brunner. The People's Party is the "biggest debt-making party of the last decades," said Fuchs.

The Federation of Austrian Industries (IV) calls for consistent and efficient savings measures. With 51.6 percent, Austria has the second-highest state revenue ratio in the EU after Finland, argued IV Secretary General Christoph Neumayer: "Once again, the figures show that Austria has a spending problem, not a revenue problem." Therefore, consistent savings and reforms in structures are necessary, from pensions to education and health to administration.

The Greens want to hold the states accountable. The budgetary situation in Austria is "challenging." The states must contribute to consolidation, says budget spokesperson Jakob Schwarz: "Standing up and saying 'No' from the outset, as some state governors have done in advance, is certainly not the right way." Schwarz also pointed out that the 2024 budget was Maastricht-compliant when created under the turquoise-green coalition and that the federal government adhered to it in execution.

The Freedom Party mainly criticized the People's Party. "The ÖVP has driven Austria's budget into the ground with open eyes!" says the blue finance spokesperson Hubert Fuchs. The development must have been known to former Finance Minister Magnus Brunner (ÖVP), after all, the figures are available every month. Nevertheless, Brunner did nothing about it. Fuchs suggested bringing a ministerial indictment against Brunner. The People's Party is the "biggest debt-making party of the last decades," according to Fuchs.

Austria needs a convincing reform plan for public finances, demanded Court of Audit President Margit Kraker to the APA: "Individual measures are not enough. Small steps are over. We must decide what the public sector should finance and what not." Tasks and responsibilities need to be bundled. No one should lean back, neither the federal government, states, municipalities, social insurance carriers, nor outsourced state companies. Additionally, budget policy means "cost truth," explained Kraker: "We must say what is in the budget, regardless of election dates."

Wifo Advocates for Federalism Reform

The "enormous negative surprise" casts a "very bad light on Austrian federalism." For years, Wifo has been demanding reforms here, says Felbermayr, who once again advocates, among other things, for strengthening the tax autonomy of states and municipalities, a clear allocation of task and financing responsibilities, and strengthening task orientation in financial equalization. It is now time to begin preparations for the next financial equalization. The current one runs until the end of 2028.

Regarding a higher contribution to budget consolidation, the states have already blocked. The state governors emphasized last week that they see hardly any possibilities for savings. Municipal Association President Johannes Pressl (ÖVP) also pointed to the already poor financial situation of the municipalities. On Monday, Tyrol's Governor Anton Mattle (ÖVP) also joined the chorus of state leaders. Tyrol and its municipalities have "the lowest debt nationwide," Mattle emphasized to the "Tiroler Tageszeitung." Furthermore, he reiterated that an EU deficit procedure must be avoided "by all means."

Upper Austria's Governor Thomas Stelzer (ÖVP) also did not see his state in the draw. With a surplus of 29.8 million euros, Upper Austria is the only state to achieve a positive Maastricht balance. Despite difficult economic conditions and dynamically growing tasks, the state has done its homework in recent years. Stelzer brought a debt brake at the federal level to the table, something Upper Austria implemented legally years ago as the only state.

Burgenland's Governor Hans Peter Doskozil (SPÖ) resisted on Monday against "blaming the budget fiasco in Austria caused by the ÖVP and its finance ministers on the states and municipalities." He is ready to discuss a structural reform of tasks and responsibilities with the federal government and other regional authorities, Doskozil stated. "Such a reform cannot be a one-way street that imposes additional tasks on the states and municipalities without providing them with the necessary financial resources."

Bonin: Private Households Must Also Contribute

IHS head Holger Bonin wants to involve private households in the consolidation of Austrian public finances. People currently have more money available, but economic output has shrunk, he said on Sunday in the ORF "Pressestunde": "That will have to be addressed." Bonin also wishes for a contribution from states and municipalities, and he does not find an EU deficit procedure inherently bad. In climate policy, the economist calls for "long-term goals."

"The state has suffered, the debts have gone up," said Bonin regarding the economic development of recent years. The public sector has stepped in for private individuals, which is now reflected in the budget deficit. However, companies also have little room for investment due to high wages. Now households must also contribute. There is a wait for private consumption to pick up, which is also a "question of trust."

Outlook "Not Particularly Good"

From 2026, the IHS expects moderate economic growth of about one percent annually. However, this increase is not guaranteed, and the medium-term outlook is "not particularly good," according to Bonin: "We have to be concerned." From the presentation of the financial data for 2024, he expects "rather negative surprises."

"The deficits in the municipalities are probably higher than expected," said the economist. However, it is important how one reacts to an additional budget gap. Bonin described the recently reported savings requirement of around 12 billion euros this year as the "absolute upper limit." States and municipalities must help with saving, but there should also be discussions about financial autonomy in certain areas.

EU Deficit Procedure Would Not Change Anything for Now, According to Bonin

An EU deficit procedure would not change anything for now, according to Bonin. Politics must clearly show where it is headed, regardless. Sustainable measures are crucial. The IHS head also called for such measures in the climate sector and identified a "gap" in the government program. This shows a reluctance to commit. For example, the elimination of environmentally harmful subsidies is needed.

Overall, Bonin wanted to remain optimistic: "I believe we can do it," he said regarding budget consolidation. He finds the mood in the new government "constructive," and their approaches "evidence-based." He himself would rather not enter politics but continue to exert influence in an advisory capacity, said the economist from Germany.

The FPÖ saw the budget on Sunday as being burdened primarily by the areas of asylum and migration. Party leader Herbert Kickl called for a "monthly transparency report on the total costs" via a press release. For budget planning, the "comprehensive disclosure of all costs" must also take place. Each ministry must ultimately know what it spends in the asylum sector. Kickl accused the government of "obfuscation, concealment, and cover-up."

(APA/Red)

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