The government in Vienna expects tax revenues to increase significantly in 2023. And that is almost the only good news in the budget debate. A weak economy, rising interest rates and high inflation weigh on the figures. Even if the deficit falls, the mountain of debt grows.
Austria's public finances will be burdened in the coming year by the energy crisis, the sharp rise in inflation and high debt and interest rates. These are "probably the most difficult times since the end of the Second World War," said Finance Minister Magnus Brunner (ÖVP) in his first budget speech in Parliament in Vienna. The household budget he presented can be described in three words: more tax revenue, record spending and higher debt.
The massive increase in inflation is burdening the budget with higher personnel costs and pensions, but at the same time tax revenues are also bubbling up. In 2023, state revenues will increase to 98 billion euros from 84 billion euros in the current year. At the same time, spending increased to 115 billion euros after last 107.5 billion euros. On balance, this results in a minus of 17 billion euros.
Measured in terms of gross domestic product (GDP), the deficit will be 2.9 percent in the coming year and thus remain just below the Maastricht limit of three percent. In the current year, the deficit is expected to shrink from 5.9 percent to 3.5 percent. The debt ratio will fall to 78.3 percent next year and is expected to fall to 72.5 percent by 2026. The absolute level of debt, on the other hand, will increase to 394 billion euros by then.
In view of the difficult economic situation and the war in Ukraine, the budget is fraught with uncertainty, Brunner admitted. The economic research institute Wifo only revised its forecasts at the end of last week: Economic growth of 0.2 percent is now expected for 2023 after 4.8 percent in the current year. Inflation is expected to drop to 6.5 percent in the coming year after 8.3 percent.
Higher interest rates are also putting pressure on the budget. After the interest rate hike by the European Central Bank in the fight against inflation, interest expenses will double next year to EUR 8.7 billion. The Finance Minister is concerned about the growing distance to Germany. Austria currently has to pay 0.6 percentage points more interest than the neighboring country for new debts.
The Corona crisis and the aid measures worth billions had already torn a deep hole in the state finances. In the meantime, additional relief packages for households and industry worth billions have been added to dampen the high inflation. Now is not the time to talk about a zero deficit, said Brunner. In the medium term, however, Austria should return to a sustainable budget path.
