Fiscal Council Warns of €5.7 Billion Gap in Federal Budget

For 2027, the Fiscal Council expects a deficit of 3.6 percent, and for 2028 – as does the National Bank – again 3.8 percent. The Ministry of Finance assumes 3.5 percent for 2027 and a lower figure for 2028. The difference between the two forecasts illustrates how narrow the corridor for a trend reversal is.

An additional statistical effect compounds the difficulty: changes in the booking of the EU emissions trading will, in accounting terms, add a further €1.6 billion to the deficit in 2028. This technical adjustment is not the result of political decisions, but it worsens an already tense situation.

What Is New Since June 19

What Is New Since June 19

Since the last reporting on June 19, the Fiscal Council has presented its spring forecast and for the first time named concrete figures for the size of the budget gap: €5.7 billion are missing, according to the council, to reach the deficit target. Also new is the precise breakdown of deficit forecasts through 2030 as well as the explicit warning of record-level debt.

The Fiscal Council points out that, according to its forecast, the government debt ratio will rise to a historic high of 87.9 percent of economic output by 2030 – a figure clearly above the 84.6 percent targeted by the government. This difference between the institutions had not been articulated with this sharpness in previous reporting.

In addition, the Fiscal Council forecasts budget deficits for 2029 and 2030 as well, which, at 3.6 percent and a figure above that respectively, will lie far above the permitted three-percent threshold. It thus becomes apparent that Austria is unlikely to exit the EU excessive deficit procedure without additional consolidation steps.

Consolidation Need and Debt Ratio

Consolidation Need and Debt Ratio

To stabilize the debt ratio, the budget deficit should, according to the Fiscal Council, amount to a maximum of 2.5 percent of GDP annually, and to no more than 2 percent for a medium-term reduction. The actually expected values are, however, above this in all forecast years – a structural problem that cannot be solved by cyclical recovery alone.

Role of the Fiscal Council and Political Assessment

The Fiscal Council also sees a concrete gap of €400 million in a yet unspecified area of the budget. This smaller subcomponent indicates that the deficit problem cannot be explained by global economic developments alone, but also has homegrown causes.

Role of the Fiscal Council and Political Assessment

EU Excessive Deficit Procedure and Stability Pact

The Fiscal Council is an independent advisory body of the Republic of Austria tasked with scientifically analyzing public finances and advising the government and parliament. Its president, Christoph Badelt, has stood for a fiscally cautious line for years and regularly emphasizes the need for structural reforms.

The Fiscal Council's current forecast comes at a time when the government is already under pressure to present additional consolidation steps. The difference between the expectations of the Ministry of Finance and those of the Fiscal Council shows that assessments of the necessary austerity course diverge.

Comparison With Earlier Forecasts

EU Excessive Deficit Procedure and Stability Pact

Austria has been in the EU excessive deficit procedure for some time, which is initiated when a member state exceeds the three-percent threshold of the Stability and Growth Pact. The Fiscal Council's current forecast suggests that a return to a deficit below this threshold in the coming years is not realistic if no additional measures are taken.

Outlook on the Upcoming Budget Negotiations

The European Commission regularly evaluates national budget plans and can impose sanctions in the event of persistent failure to meet the requirements. A historic high in the debt ratio of 87.9 percent, as the Fiscal Council projects for 2030, would further weaken Austria's negotiating position in Brussels.

Comparison With Earlier Forecasts

Compared to earlier assessments, it is notable that the Fiscal Council has slightly revised its expectations for 2028 downward – from previously over four percent to now 3.8 percent of GDP. This improvement is, however, attributable primarily to the aforementioned statistical effect in EU emissions trading accounting, not to a substantive improvement in the fiscal situation.

The forecast for 2027 was also adjusted and now stands at 3.6 percent. Here too, progress is minimal and the fundamental direction – persistently above the three-percent threshold – remains unchanged.

Outlook on the Upcoming Budget Negotiations

The upcoming budget negotiations for 2027 are overshadowed by this forecast. The government will have to decide whether to raise the additional €5.7 billion through spending cuts, tax increases, or a mix of both. The Fiscal Council indirectly recommends a clear consolidation course by naming the structural limits of the debt ratio.

In parallel, discussions are underway at the EU level on a reform of the Stability Pact that could give member states more flexibility in reducing deficits. Should such a reform come into force, it would somewhat ease the urgency of Austrian consolidation – the fundamental risks of a growing debt ratio would, however, remain.

Overall, the Fiscal Council's spring forecast shows that Austria faces a multi-year phase of heightened fiscal tension. The discrepancy between the Ministry of Finance's forecasts and those of the Fiscal Council will shape the public debate on the right austerity course in the coming months.