Federal States and Federation Significantly Reduce Deficit in First Half of the Year

The federal government itself plans, according to government circles, also with a lower deficit than originally assumed. A government spokesperson explained: „Jetzt sieht es einmal ganz gut für sie aus." What is meant is: the financial situation is currently developing more favorably than expected for the states and the federal government.

Background: Stability Pact from Late 2025

The background is the stability pact signed by the federal government, the states, and the municipalities at the end of 2025. In this pact, the territorial authorities agreed on a percentage-based distribution of the permissible new debt level. The pact is intended to ensure compliance with European fiscal rules while taking account of the differing financial leeways of the states.

For Vienna, the development means a tangible relief in the current budget execution. The city can either use the funds for additional investments or push down the year-end deficit further. Both would be compatible with the stability pact's requirements, as long as the agreed paths are not exceeded.

Relief for State Budgets

Lower Austria and Tyrol also benefit from the more favorable course. Both states had repeatedly struggled with high structural deficits in recent years. The current figures give them financial leeway without having to leave their consolidation paths.

The Fiscal Council and the Institute for Advanced Studies (IHS) are monitoring the development. Holger Bonin had most recently pointed to the cyclical recovery and the falling inflation as drivers. Both effects have a positive impact on the tax revenues of the federal government and the states.

EU Commission and Fiscal Rules

The EU Commission receives the Austrian budget data as part of the European Semester. Should the positive development continue, this could improve the assessment of the European fiscal rules for Austria. However, experts caution against interpreting the falling deficits as a permanent trend.

What matters is that the lower deficits are not necessarily the result of austerity measures, but are partly cyclical in nature. If interest rates rise again or the economy weakens, the figures could look worse again in 2027. The government therefore plans to use part of the additional revenues for debt repayment.

Overall, it is becoming apparent that Austria will be able to meet the targets agreed in the stability pact in 2026. The upcoming budget negotiations in the autumn will show whether the positive half-year figures will be translated into concrete budget decisions.