New Revenue Sharing System and Stability Pact: No Fundamental Changes

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. Länder 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 Länder 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.