Distributive Effects Emanating from Austria's Budget Policy

Immediately upon taking office, the new Austrian government was forced to take action to narrow the growing gap in the financing of the national budget which was caused by the 2000 tax reform and the family package. In doing so it not only complied with its commitments under the EU's Stability and Growth Pact, but it also took advantage of the good economic situation which made prompt action advisable. At the same time this meant cancelling most of the benefits granted to the population on the expenditure and revenue side of the budget. The target for the 2002 budget deficit was reduced from –1.3 percent to 0 percent of GDP in just a few months. In view of this rapidly accelerated pace of consolidation, the distributive structures were naturally affected as well. The effect of the many individual measures on social groups and income strata can best be gauged when we look at income and consumption taxes and pensions. Here we find that cuts were greatest, in relative terms, at the medium and lower income levels, but not at the bottom of the income hierarchy. This applies most particularly to above-average pensions, which will suffer a greater loss from wage tax changes in 2001 than they gained by the tax reform of 2000. In assessing measures that affect company revenues we are confronted with complex issues of impact incidence, and we frequently need to consider second-round effects due to the shifting potential. The consolidation measures taken by the Federal Government in 2000 show signs of a refocus in the government's distribution policy. Nevertheless no ultimate concept has so far emerged, neither with regard to basic tax and pension reforms, nor in family policy, in the treatment of gainfully employed women and housewives, nor in the fiscal equalisation scheme for the federal and provincial governments.