14 June 2005 • The Draft Federal Budget for 2006: Key Features and Trends in a Longer-Term Perspective • Margit Schratzenstaller

The 2006 federal budget is marked by the fiscal effects of the 2004-05 tax reform as well as the persistence of high unemployment. Accordingly, the federal Maastricht deficit will decline only slightly (to 2.2 percent of GDP). By 2008, a balanced budget is to be achieved for the general government: the states and local governments are to produce a surplus of 0.75 percent of GDP, and the federal government is to reduce its Maastricht deficit to 0.75 percent of GDP. At the same time, revenue and expenditure ratios at federal and overall level are to be further reduced. The budgetary targets up to 2008 call for the adoption and implementation of existing plans to reduce the upward pressure on spending, especially by reforming public administration, the health care sector, and the division of responsibilities between the levels of government.

The importance of transfer payments has been steadily rising since 2000: in the 2006 budget they will make up almost 40 percent of overall federal expenditure. In particular, spending on family and unemployment subsidies has been growing considerably over the past years. Also, the weight of financing expenditures is rising in the long term, whereas the share of expenditure for public goods and services is declining, also in the long run, due to outsourcing and personnel cuts.

Within federal spending, the focus in recent years has been on research, infrastructure and family benefits. The initiative to permanently incorporate gender budgeting was continued in the 2006 budget; to this end, it is necessary to strengthen the use of external expertise and establish internal know-how.

Since 2000, the importance of one-off measures has diminished as a source of federal revenues, a development that makes the revenue side of the federal budget more sustainable. The shift towards indirect taxation, observed over the past years, is losing momentum in the 2006 budget.

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