Federal Government Continues Consolidation Process
The Federal government attained the goal of budget consolidation in 1997. The net deficit declined to 2.6 percent of GDP. The other territorial authorities have also exceeded their goals. Thus, the general government deficit totaled only 2.5 percent of GDP, and Austria has easily met the budget deficit criterion for participation in the European Economic and Monetary Union. Fiscal restraint, however, does not only serve to meet the "Maastricht criteria", but also to gain maneuvering room for fiscal policy in the medium term. More than half of the reduction in the deficit during the years 1996-97 was achieved by savings on the expenditure side. Tax measures also contributed to the reduction in the deficit. The 1999 draft budget is set to stabilize the deficit ratio. The favorable development must not be jeopardized, however, by additional claims on the Federal budget, a caveat that is also necessary in view of the EU Stability Pact. The outlay structure has undergone significant shifts. This can be traced to the establishment of new public sector entities (railroads, Post Office, Federal real estate agency) as well as new modes of financing public investment (leasing). The result is a shift in infrastructure investment from the public to the private sector. An important task of the Federal government remains the financing of pensions. About 20 percent of total expenditures are allocated to this item. In addition to funding the pensions to Federal civil servants (including those in the railroad system and the postal service), the Federal government contributes large amounts to the pension insurance scheme. Despite various reform measures, the Federal contributions are set to rise to ATS 59.6 billion in 1999, from ATS 57.5 billion in 1997. An important component of Federal social expenditures is assistance to families. Family allowances are scheduled to be raised in 1999 (in addition, income tax deductions for children will be increased). These measures will require additional funds of ATS 3 billion. Reductions in tax revenues also amount to ATS 3 billion; in sum, additional funds allocated to family assistance will total ATS 6 billion in 1999. More funds are budgeted for active labor market policies, especially within the framework of the National Action Plan. In 1999, ATS 3 billion are allocated to these programs. Within the support programs for the manufacturing and small business sectors, the emphasis is shifting from the traditional measures (such as subsidized loans) to measures fostering technological innovation. Moreover, regional programs, some of which are co-financed by the EU, are also gaining in importance. The most important source of revenue of the Federal budget are taxes, which cover about two thirds of expenditures. As a result of various measures, tax revenues rose substantially in 1996-97. In 1997, the tax ratio reached a record high. It is expected to decline slightly in 1998-99, as a result of the termination of one-off effects and new provisions regarding the taxation of families with dependents. Revenues from the value-added tax and other excise taxes are expected to rise slowly, with a rate of growth below that of GDP. In 1997, receipts from privatization totaled ATS 17.2 billion, constituting an important source of revenue. For 1999, privatization receipts are budgeted considerably lower, at ATS 3 billion. The 1997 budget deficit was financed entirely in the form of schilling debts. As a result, the share of debt denominated in foreign currencies in the total Federal debt fell from 21.2 percent in 1996 to 20.7 percent in 1997.