Budget analysis – deficits and debt at high levels until 2027

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Government generosity comes at a price. It needs to finance additional spending, and higher interest rates and pension costs are putting pressure on the budget. The minus for 2024 is 2.7 percent and will not decrease in subsequent years. Consolidating the state budget is apparently no longer a problem…

It was foreseeable that the 2024 budget would lead to a higher deficit. The economic forecasts used to calculate tax revenues have deteriorated. High interest rates put pressure on debt service. High inflation leads to additional expenditure for civil servants and pension costs. The starting point for the federal government is a minimum of 20.9 billion euros for 2024. That may be acceptable given the short recession in 2023.

But what’s really surprising is that the budget trajectory for the next four years differs significantly from previous forecasts. There is no longer talk of reducing the debt ratio or reducing the deficit. “We should have already had this goal in mind, but we now had to set other priorities,” said Finance Minister Magnus Brunner.

In 2027, a government deficit of 2.7 to 2.8% per year is expected. That is still just below the ‘Maastricht limit’ of three percent (Brunner: ‘Other countries are much worse’). But if there are one or two “election treats” or a new energy crisis breaks out, we will immediately go beyond that. The debt ratio remains at 76% of GDP, well above the pre-corona crisis level.

For the head of the Budget Council, Christoph Badelt, this development is “problematic”. That is the opposite of sustainable. “We are spending more money than in the Corona crisis years,” says Franz Schellhorn, boss of Agenda Austria, who criticizes the budget policy. While there was a small budget surplus for the first time in 2019, the deficit will now increase further in the coming years.

Who benefits from higher government spending?
What are the largest chunks of additional expenditure: Brunner likes to emphasize the “historic” abolition of cold progression, from which all taxpayers benefit (costs totaling 23.8 billion euros in 2027). The social benefits are valued annually. There are reductions in corporate tax and in the third level of payroll tax. New funding for low-income people, for climate protection, more money for education, for states and communities, the list goes on.

But the costs are galloping away: the subsidy for pensions will increase by 4 billion euros to almost 30 billion euros in 2024, almost a quarter of the federal government’s total revenues! We only pay 9 billion euros in interest on our national debt. Budget Council boss Badelt: “We have been calling for structural spending reforms for years in vain.”

Source: Krone

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