2 February 2005 • A New Revenue Sharing Act and a New Stability Pact for Austria – No Fundamental Changes • Margit Schratzenstaller

In late 2004, a new revenue sharing system and a new Stability Pact for Austria were adopted for the period from 2005 to 2008. The new Austrian Stability Pact aims at reducing the Maastricht-relevant overall government deficit from 1.9 percent of GDP to a "zero deficit" in 2008. The federal deficit is to decrease from 2.4 percent to 0.75 percent of GDP. States and municipalities are obliged to achieve budget surpluses, which are to increase from 0.6 percent to 0.75 percent of GDP. Particularly for the states and the municipalities, the goals of the new Stability Pact are rather ambitious. The surpluses attained in the last few years partly rest on one-off measures and on the specific design of budgetary transactions (e.g., spin-offs of public entities, property sales, leasing transactions). This consolidation strategy cannot be expected to be sustainable in the long run. The municipalities markedly retrenched on their investment outlays, which may reduce the long-term growth potential.

The new revenue sharing system will not change fiscal relations across governmental levels fundamentally. Several exclusive federal taxes will be converted into shared federal taxes. Most of the shared federal taxes will be distributed vertically according to uniform revenue shares. The promotion of residential building and the system of federal reimbursement of the costs for state teachers will basically remain untouched. The states will receive additional federal transfers for state teachers to the amount of Euro 12 million per year. A package for the financing of hospitals was adopted, with a volume of Euro 300 million per year, which is to be matched by savings of an identical volume (health reform). Need-based transfers to states and municipalities will be increased by Euro 100 million per year each. The multiplier for the modulated population apportionment formula will be raised for the smallest communities, with the effect that financial means will be redistributed towards the smallest communities within the horizontal apportionment of revenue shares across communities. The new revenue sharing system will not reduce the strong dependency of states on federal transfers. Moreover, it will not increase tax autonomy at state and municipal level, which would be another precondition for strengthening the link between expenditure and fiscal responsibility and thus for increasing the efficiency of public spending.

For further information, please refer to Margit Schratzenstaller, phone (1) 798 26 01, ext. 204, E-Mail-address Margit.Schratzenstaller@wifo.ac.at, For the full text of this article see the Internet under http://www.wifo.ac.at