22 April 1997 • Revenue Sharing between the Federation and the States • Gerhard Lehner

Cooperation between the federal government, the states, and the communities is emerging as one of the central themes of Austria's fiscal policy. In the legal realm, this cooperation is based on the consultation mechanism and the intra-Austrian stability pact, which needs to be concluded by the end of 1998.

States and communities have already declared their intention to limit new indebtedness to 0.3 percent of GDP, in order to fulfill an important precondition for Austria's participation in the European Economic and Monetary Union (starting in the year 1999).

The maneuvering room of the states with regard to their revenues is rather small; it is further restricted by the "Maastricht criteria". In funding expenditures, the states are heavily dependent on revenue sharing, which provides for more than 60 percent of their revenues. In 1997, the states (excluding Vienna) will receive ATS 143.6 billion from revenue sharing. The most important revenue sources for the states (excluding Vienna) are the shares in the tax revenues; they determine the budgetary maneuvering room for the states. The revenue shares flowing to the states rose at a somewhat slower pace than the total federal tax receipts subject to revenue sharing. This renders the states' fiscal management more difficult.

About 80 percent of tax revenues are allocated on the basis of population size. Overall, tax receipts per inhabitant show a clear decline from the west to the east of Austria, a pattern that has been very stable over time. In 1997, the per-capita receipts from revenue sharing are expected to be as high as ATS 12,067 in Vorarlberg, while the corresponding figure for Styria is as low as ATS 9,907.

The so-called per-capita equalization rate, which is funded by the federal system, compresses the gradient by about one half but does not eliminate it.

In 1996, an important change has occurred in the funding of the budgets of the states: the states now receive need-based funds according to section 21a of the Revenue Sharing Act; the basis for determining the volume of these funds is the difference between the shares in the revenues of certain important taxes and the funds for the promotion of private dwellings which are now fixed in absolute terms. These need-based funds are not ear-marked any more and widen the budgetary leeway. In 1997, the states (excluding Vienna) will receive about ATS 4.5 billion from this source; this will facilitate the consolidation of the budgets.

Most of the other revenues which are transferred from the federal system to the states are earmarked (remuneration for teachers, short-distance transportation, environmental protection, promotion of theaters, etc.). In 1997 the states will receive (as a one-time contribution) ATS 0.6 billion for financing child care institutions (of which ATS 159 million will flow to Vienna).

On top of receiving additional revenues, the states have also provided for considerable expenditure cuts in their budget proposals. These measures will have the effect of sharply reducing the high deficits which were incurred in 1995. In 1997, the states (excluding Vienna) will achieve a total surplus (measured according to the Maastricht criteria) of some ATS 2.9 billion and thus make a substantial contribution to achieving the standards for participation in the Economic and Monetary Union.

The fiscal situation varies, however, greatly across the states. Lower Austria and Burgenland will post deficits (according to the Maastricht criteria), Styria and Carinthia will achieve a balanced budget, while the western states will record surpluses, some of them quite substantial. In the future, this wide divergence could possibly create problems for the intra-Austrian stability pact.