Without drastic austerity measures from a new government, the domestic deficit would continue to explode: experts from Wifo and IHS expect minus 4.2 percent and minus 3.8 percent respectively for 2025, after 3.7 percent this year.
There is no reason to be in a good mood under the Christmas tree when you look at the figures from the economic researchers: without massive austerity measures, the Austrian budget deficit next year would stray considerably further from the three percent target applicable under EU debt rules . The following year the deficit would still amount to 4.1 (Wifo) or 3.6 percent (IHS), and the national debt would rise to 84.5 percent of economic output without fiscal consolidation.
Politicians can no longer ignore budget holes
IHS boss Holger Bonin at least finds something good about the current situation: “The economic debate has been more intense than in a long time since the National Council elections. The actors simply cannot ignore the major problems and budget gaps.”
What needs to be done? Bonin: “First, a new government could jump over its shadow and become involved in an EU deficit procedure. The motivation should not be that we have to save less in the next five years, but that we have to save slightly less in the coming year, at least in the short term. Why? In order not to immediately strangle the economy, which is still a fragile plant.” But a savings target in the order of “20 to 25 billion euros” would be needed over the next five years.
Where should you save? Bonin: “Mainly on the expenditure side, but also through unpopular measures such as pension cuts, so that we can increase the effective retirement age, which is very low.
In any case, the next government must avoid the temptation to “lend a helping hand to struggling companies because that could be a waste of money. Experience shows: a dead horse does not come back to life.”
There are also opportunities for the economy
Wifo boss Gabriel Felbermayr sees risks for the economy, such as possible new tariffs from Trump, but also opportunities: “If Germany reforms the debt brake, it will lead to more growth. If the Germans do their job, we will have to save less, that would be good.’ And it is also possible that the EU will reach a deal with Trump and not be hit as hard by tariffs.
The climate bonus is a thorn in Felbermayr’s side. He is in favor of a complete abolition: “A complete abolition would yield 2.3 billion euros, I would be in favor of it.” At the same time, educational leave must be changed: “Many academics use this as an extension of parental leave, which even has negative growth effects because highly educated employees withdraw from the labor market.”
Important: Don’t just save money, but also tackle reforms
In any case, it is important “not only to save, but also to implement reforms.” To avoid an EU deficit procedure, austerity measures amounting to 6.3 billion euros are needed as a first step. Felbermayr: “Those 6.3 billion will be found. But that could mean that important reforms do not take place. And that would be a catastrophe if you realized within a year: we didn’t make it and ended up in a deficit procedure. Then the financial markets would react very negatively and that would lead to higher premiums on government bonds.”
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
