Austria Budget 2026: IHS and Wifo View Double Budget Critically

Debt ratio continues to rise

According to the IHS, Austria's debt ratio rose to 81.3 percent last year and, according to projections, will increase to 83.1 percent in 2026 and 84.3 percent in 2027. Wifo likewise expects a debt ratio of just under 84 percent for 2027. Austria is thus moving increasingly away from sustainable public finances.

Both institutes forecast a general government budget deficit of four percent of gross domestic product (GDP) for the current year. For the coming year, they expect a deficit of 3.7 percent. The EU permits a maximum of three percent — Austria is therefore clearly above that. Finance Minister Markus Marterbauer (SPÖ) is targeting the three-percent mark only for 2028.

Deficit forecasts above the EU threshold

In its central scenario, the IHS expects a deficit of 3.2 to 3.3 percent for 2028; the Oesterreichische Nationalbank (OeNB) assumes even 3.8 percent in its forecast published in mid-June. Even the government's official target is therefore considered ambitious.

IHS Director Holger Bonin stated the hurdle unequivocally: „Es müssen schon sehr günstige Umstände zusammenkommen, dass die Regierung 3 Prozent 2028 erreicht.“ Wifo Chief Gabriel Felbermayr explained that the double budget for 2027/28 was „noch kein sanierter Haushalt" and that reaching the three-percent mark in 2028 was „alles andere als sicher".

Criticism of budget consolidation

Felbermayr also warned that the high deficit makes it impossible to reduce the debt ratio and that the interest burden on government debt would „immer höhere Anteile des Budgets auffressen". Wifo points out that interest expenses are rising and public debt is increasing.

According to Bonin's criticism, the government is relying too heavily on taxes in its consolidation efforts: roughly two-thirds of the budget consolidation would be achieved through taxes and levies. He described the reduction in non-wage labor costs fixed in the double budget as „eine teure und nicht zielgenaue Maßnahme".

On the revenue side, Wifo sees certain reliefs: the extension of the increased stability contribution and the parcel levy contribute to improving the budget situation. On the expenditure side, lower subsidies in the environmental area as well as only partial inflation adjustment for public-sector salaries and pensions dampen expenditure dynamics, according to the IHS.

Economy sends mixed signals

The structural weakness, however, persists: the IHS notes that in the medium term it will not be possible to significantly reduce the expenditure ratio and thereby create fiscal policy headroom. Rising Austrian contributions to the EU budget are also increasing the pressure on public finances.

The picture on economic growth is mixed: Wifo confirmed its forecast for the current year at 0.9 percent growth. The IHS raised its growth forecast for 2027 by 0.2 percentage points to 1.0 percent. Bonin explained on the Ö1-Mittagsjournal that the main reason was a statistical effect: Statistics Austria had supplied new figures accounting for 0.2 of the 0.3 percentage points; the remaining 0.1 percentage points were due to changes related to the Iran war.

For 2027, Wifo, by contrast, revised its growth forecast downward from 1.3 to 1.1 percent. The IHS forecasts stagnation in domestic economic output for the second and third quarters of 2026; only toward the end of the year is growth expected to pick up again.

Felbermayr described the cyclical situation as „nicht stürmisch, aber ganz passabel". Wifo expects the economy to gain momentum from the second half of the year as a result of falling energy prices. The industrial economy is showing strong signs of life, while construction continues to disappoint — Bonin spoke of a construction industry „nach wie vor in einer schweren Krise".

Inflation remains a risk factor: the IHS forecasts inflation of 2.3 percent for the coming year; Wifo expects 2.4 percent. Real incomes are shrinking this year due to high inflation, which is dampening private consumption. The inflation rate in the euro area rose to 3.2 percent in May, driven by the previously significantly higher oil prices. In its most likely scenario, the ECB expects inflation of 3.0 percent for the current year.

ECB monetary policy under inflation pressure

Against this backdrop, the European Central Bank (ECB) raised its key interest rates in June for the first time in nearly three years. ECB Director Isabel Schnabel announced further rate hikes: „Um die Inflation mittelfristig wieder auf unseren Zielwert von zwei Prozent zurückzubringen, werden wir aus heutiger Sicht die Zinsen weiter anheben müssen." The memory of the high-inflation phase is still fresh, she said, so expectations today must react more strongly to a rise in inflation.

Schnabel also defended the rate hike in the event of rapidly falling oil prices. The recent ceasefire in the Middle East and the drop in energy prices do not yet represent a fundamental all-clear from the ECB's perspective. Energy prices have been declining since mid-May; on Thursday, the oil price was back at its pre-war level. In this case, Bonin sees Austria's economy and citizens as having „noch einmal davon gekommen, sollte der Iran-Krieg zu einem gütlichen Ende kommen" — though only „eine leichte Wachstumsdelle" would be expected.

A clear deterioration is visible on the domestic labor market: the national unemployment rate rose from 6.3 percent in 2022 to 7.4 percent in 2025; unemployment figures have been climbing since spring 2023. The subdued economy is also slowing budget consolidation, in the IHS's assessment.

Political reactions and outlook

Economic policy reactions are mixed. Federal Chancellor Christian Stocker (ÖVP) stated that the growth target of one percent for 2026 remained „in Reichweite". Economics Minister Wolfgang Hattmannsdorfer (ÖVP), Finance State Secretary Barbara Eibinger-Miedl (ÖVP), and Chancellor Stocker expressed satisfaction together with the resilience of the domestic economy. SPÖ Federal Managing Director Klaus Seltenheim emphasized that the fight against inflation had „weiterhin höchste Priorität". ÖGB Federal Managing Director Helene Schuberth called for strengthening purchasing power so as not to endanger the cautious upswing. FPÖ economic spokesperson Barbara Kolm criticized the government's economic policy in light of persistently high unemployment and declining real incomes.

One thing is clear: in the leading economic researchers' view, the double budget for 2027/28 represents only an intermediate step. Whether the three-percent mark is actually reached in 2028 depends, in their assessment, on the further economic developments, energy prices, and the ECB's monetary policy decisions.