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Austria’s Deficit Breaches EU Limit—Government Responds with Tax Measure
Facing a 4.7% budget deficit in 2024—well above the 3% Maastricht threshold—Austria is preparing for formal EU deficit proceedings, expected to begin as early as May 2025. In response, the federal government enacted a broad suite of tax increases and spending cuts effective April 1.
While the aim is to stabilize public finances and avert EU sanctions, economists warn that the current strategy of consumer tax hikes and short-term budget corrections may not be sufficient—or sustainable—without deeper structural reform.
Key Fiscal Measures Enacted
The Austrian Ministry of Finance expects to raise nearly €690 million in 2025 through a combination of targeted tax increases and subsidy withdrawals:
| Policy Change | Projected Annual Revenue | Notes |
|---|---|---|
| Tobacco excise hike | €50M | Up to €0.50/pack |
| Betting fee hike | €50M | Raised from 2% to 5% |
| E-vehicle tax reintroduction | €65M | Removes exemption from motor insurance tax |
| Court and registry fees | Not specified | Affects civil cases, land, company registers |
| End of VAT exemption for solar panels | €175M | VAT reinstated at 20% |
| Termination of educational leave scheme | €350M | Major workforce policy shift |
Notably, electric vehicles, previously central to Austria’s green policy framework, are now subject to traditional vehicle-related taxation, affecting both new and existing registrations. Critics argue this may slow adoption of electromobility and send mixed signals about climate commitments.
Legal and Political Context
Finance Minister Markus Marterbauer (SPÖ) confirmed that an EU Excessive Deficit Procedure (EDP) is likely, though he emphasized that such proceedings carry no automatic fiscal penalties, only enhanced reporting requirements. “Panic is unnecessary,” he said, warning against austerity that could deepen Austria’s economic contraction.
By contrast, opposition parties, including the FPÖ, raised concerns over a potential “loss of budgetary sovereignty” and increased EU influence over national fiscal decisions.
Why the Deficit Grew
Former Finance Minister Magnus Brunner (ÖVP) defended the overshoot, citing incorrect GDP forecasts. While Austria expected 1.2% growth, the economy shrank by 1%, expanding the deficit by an entire percentage point.
Economists including Margit Schratzenstaller (WIFO) and Philipp Heimberger (wiiw) argue that while the EDP could temporarily reduce fiscal pressure, it should serve as a catalyst for long-term reforms, especially in:
- Pension sustainability
- Public subsidies rationalization
- Administrative modernization
Will Markets React?
Despite the warning signs, Austria’s sovereign borrowing costs remain low. According to the Austrian Federal Financing Agency (OeBFA), debt interest payments stood at just 1% of GDP in 2024, compared to 3.5% in 1995. Both OeBFA and WIFO believe investor confidence depends more on reform credibility than on the initiation of an EU procedure.
Summary: Tax Hikes vs. Structural Reform
Austria’s response to its budget deficit leans heavily on revenue-side corrections and the elimination of tax incentives, directly impacting consumers and households. While these measures may buy time, experts agree that structural reforms will be essential to ensure fiscal credibility and avert prolonged EU scrutiny.
Whether Vienna is prepared to shift from short-term fixes to long-term policy transformation remains the key question heading into the second half of 2025.
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