7 August 1999 • Macroeconomic Effects of the Year-2000 Tax Reform • Fritz Breuss, Andrea Weber

The year-2000 tax reform – together with the package of family-related measures – will result in a medium-term reduction of the tax burden on private households and enterprises by ATS 32.5 billion. ATS 17 billion are accounted for by the reform of the wage and income tax-rate table, ATS 12 billion by transfer payments to families ("family package"), and ATS 3.5 billion by other measures taken to increase the attractiveness of Austria as a business location and to create employment.

Relative to the gross domestic product, this tax reform is more comprehensive than the previous ones implemented in 1989 and 1994. The main emphasis of the reform is on easing the tax burden on private consumption. Consumer demand will increase (as compared to baseline) by a cumulative 1.8 percent in real terms by 2005. With direct incentives for investors being extremely modest, investments are expected to grow by no more than 0.6 percent on a medium-term basis. Higher domestic demand, which also results in higher imports, will generate a cumulative growth of real GDP of 0.4 percent by 2005. Hence, the labour market can absorb another 9,300 employees. Price increases will be insignificant at 0.2 percent. The current-account and public sector deficits (net lending) will increase by 0.5 and 0.7 percent of GDP, respectively.