Options to Consolidate Public Households in Austria

The crisis that engulfed the financial markets and the economy generated considerable social costs and has dampened economic growth for many years to come. Endeavours to stabilise the financial system and limit the effects of the crisis put a heavy burden on public households. The high budget deficit pushes up sovereign debt rates, and higher interest rates require a response by economic policy in order to get back momentum in the medium run. WIFO estimates the cumulative consolidation requirement to be € 10 billion up to 2013. The study highlights options to consolidate the public household without pruning key economic policy goals. Consolidation is more likely to be sustained when efficiency potentials are tapped and the incentive programme of 2010 is followed by measures that act predominantly on the expenditure side. It lists options to achieve savings in administration even in the short run, to reduce subsidies and eliminate special regulations that could yield € 2 to 3 billion annually. New taxes could be used in a supplementary capacity, especially when efficiency gains and savings cannot realistically be enforced or when such taxes are politically desirable. Certainly, any increase in taxation should have a positive controlling effect, should not weaken private consumption, should consider distribution policy aspects and should, once consolidation has been successful, be used to reduce taxation of the labour factor.