## 1. Labor Supply and Productivity Trends

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---

### Overview
- Austria faces a significant decline in labor supply growth over the medium term as the growth rate of the working-age population (WAP) is expected to decline; productivity growth has also slowed.
- Working age population defined as 15 to 64 years.
- Migration scenarios: High (low) migration implies net migration higher (lower) due to 33% increase (decrease) in non-EU immigration flows.

### Recent developments in hours and employment
- Recovery since COVID driven strongly by part-time work:
  - Part-time hours accounted for a higher share of total-hours growth during 2021 and 2022 than in previous years.
  - Significantly increased female part-time work is a key driver of the increase in total hours, about a third of the total in 2022.
- Kurzarbeit take-up:
  - Peaked at more than 1,000,000 workers in April 2020 (more than a quarter of the labor force in mid-2020).
  - Fell to the range of about 200,000–400,000 workers the following year (still much higher than pre-COVID levels).
  - During the global financial crisis peak was about 37,000 workers.
- Average hours per worker per week:
  - Full-time workers: declined from 36.7 hours per week in 2019 to 35.9 hours per week in 2022.
  - Part-time workers: remained broadly at the pre-COVID level of about 22 hours per week.
  - Share of part-time employment in total employment rose from about 28 percent pre-COVID to about 31 percent.

### Labor supply parameter gaps (cross-country comparisons)
- Decomposition: Aggregate hours worked per capita (AHWpc) = WAPR x LFPR x (1-UR) x AH
  - WAPR = working age population ratio (WAP to total population)
  - LFPR = labor force participation rate
  - UR = unemployment rate
  - AH = average actual hours worked
- WAP ratio:
  - Austria average WAPR = 65.6 percent (2018–22) vs sample median 64.2 percent.
  - Working-age share among non-citizens = 73.3 percent; Austrian citizens = 63.9 percent.
- Labor force participation rate (LFPR):
  - Austria LFPR ≈ 77 percent during 2018–22 (around the median).
  - Male and female participation well above sample average between ages 15–59, but drop below the sample lower quartile for ages 60–64.
  - Elderly female participation: 19.6 percent (2018–22) vs sample median 45.6 percent.
  - Elderly male participation: 45.5 percent vs sample median 62.9 percent.
  - Raising elderly participation rates to the median would potentially add about 125,000 workers, equivalent to about 2.7 percent of the current labor force.
- Unemployment rate:
  - Austria’s unemployment rates have remained relatively low over the past 25 years.
  - Long-term unemployment reduced from 2.5 percent in 2017 to about half that figure at end-2019.
- Average hours (per worker per week):
  - Median across sample fell from somewhat below 39 hours to about 37 hours per week over time.
  - Austria’s hours worked per week fell to just over 34 hours per week in the last 5 years, below the sample median.
  - In 2018–22, females averaged 30 hours per week (sample median 33.6 hours); males averaged 38 hours per week (about 1 hour less than the median).
  - Closing average-hours gaps relative to the median could potentially increase aggregate hours worked by about 7 percent, though increasing hours substantially would likely require compositional shifts toward more full-time female work.

### Part-time work, care responsibilities, and gender differences
- Female part-time profiles and care:
  - Over the average lifespan, engagement in part-time employment noticeably increases among females aged 25 to 39, and then experiences a marginal decline but never returns to the levels observed at age 25; this pattern is absent among males.
  - 60 percent of women working fewer than 30 hours per week attribute this to domestic duties, childcare, or caring for others, compared to 10 percent of men.
  - 4.5 percent of females reportedly change jobs to accommodate childcare or other dependent care needs, compared to 2 percent of men.
- Childcare supply, availability, and social attitudes:
  - The supply of formal childcare arrangements is low, particularly for full-time care in some regions.
  - Financial cost is not a primary constraint; the main constraint is availability of childcare services that are open for the full working day, especially outside Salzburg and Vienna.
  - Lack of childcare services correlates strongly with prevalence of part-time work among females.
  - Disapproval of women with children under the age of three to work is close to 50 percent.
- Gender pay gap, earnings, and pensions:
  - Gender pay gap in 2022: 18.4 percent (EU-27: 12.7 percent) — the second largest in Europe.
  - Approximately one-third of the gender pay gap is attributable to gender-specific labor market variances (sectoral composition, part-time work, shorter tenures).
  - “Unexplained” wage gap = 14 percent.
  - Education (2020): 21.2 percent of women between 25 and 64 had an academy or university degree, compared to 17.1 percent of men.
  - Gender pension gap as of 2022 = 41.1 percent.
- Pension system features and reforms:
  - Austria has the highest effective annual accrual rate in Europe (1.72 percent).
  - Nominal legal accrual rate = 1.78 percent.
  - Ceiling accrual rate on average earnings = 1.55 times average earnings.
  - Reforms: standard pension age for women increasing from 60 to 65 from 2024 to 2033; penalties for early retirement reintroduced (social insurance old-age pension reduced by 4.2 percent for each year claimed before age 65); early starter bonus introduced (monthly supplement for pensioners with at least 300 months of paid contributions including at least 12 months before age 20).
  - Health constraints: share of individuals aged 55–64 with disabilities exceeds that of peers in other European countries.

### Immigrant population and labor market integration
- Roughly 20 percent of Austria's population was born abroad, average age of foreign-born = 36 years vs native average = 45 years.
- 2022 employment rate for foreign-born aged 15–64 = 69 percent, 6 percentage points below Austrian natives.
- Foreign-born persons less likely to be long-term unemployed than Austrian natives: 11.5 percent vs 19.7 percent in 2022.
- Nearly 37 percent of individuals with a migrant background employed in blue-collar jobs vs 18 percent among Austrian natives.

### Overlapping generations model and calibration
- Model structure:
  - Heterogeneous agents by gender (male and female), age (16 cohorts of 5-year intervals, from 0–4 to 80–84), and education (4 types).
  - Two household types: couples (female and male, who will have children) and single households (who do not have children). Couples share a single utility function and face additional disutility if the female works when they have children.
  - Childcare cost included in budget constraint when the mother works.
  - Representative firm hires male and female effective hours and rents capital at rate r*; production function calibrated to match capital share, depreciation, TFP growth, and unexplained gender pay gap.
  - Government: collects labor income taxes, social security contributions, VAT, firms’ revenues, and savings interest; spends on goods, childcare subsidies, and pension benefits. Pension payments correspond to nominal accrual rate 1.78 percent times years worked times average lifetime wage.
- Calibration:
  - Model calibrated to 2023 micro and macro data and projected to 2050, accounting for demographics, educational achievements, and extension of women’s retirement age to 65.
  - Selected calibrated parameter values include:
    - 퐽퐽 Number of periods = 13
    - Retirement age for men = 10 (age 65); for women = 9 or 10 (age 60 or 65)
    - 휅휅푡푡 Childcare cost = €48,500 per child
    - 휙휙푡푡 Unexplained gender gap = 1 - 0.0985
    - 훽훽 Agents’ discount rate = 0.94 for one year
    - 푟푟∗ Interest rate = 4 percent per year
    - 훼훼퐾퐾 Capital share = 0.353
    - 훿훿퐾퐾 Depreciation rate of capital = 5 percent per year
    - 퐴퐴̇ TFP growth rate = 0.3 per year
    - 휏휏푐푐 Consumption tax rate (VAT) = 0.20
    - 휏휏푣푣 Corporate tax rates = 2.76 percent of firms’ revenues
    - Social security contributions: employee = 0.1812 (0.1025 for pensions only); employer = 0.2103 (0.1255 for pensions only)
    - Minimum pensions: €967 per month for household type 2 and €1472 for household type 1
    - 휌휌 Pensions accrual rate = 1.78 percent per year
- Endogenous disutility calibration:
  - Female disutility parameter 휓휓푅푅 = 0.37 matches average female hours worked (matching statistic 35.9 hours/week; model value 35.5 hours/week).
  - Male disutility by age group 휓휓푗푗푅푅 = 0.210; 0.145; 0.145; 0.145; 0.145; 0.145; 0.145; 0.220 matches male hours by age group (matching and model values reported in source).
  - 푞푞푡푡[�푒푒푅푅�] (disutility of female work) ranges 0 to 0.30 to match female LFPR by age group (matching statistics and model values reported).

### Policy scenarios evaluated (impact measured in 2050 relative to baseline)
- Six scenarios: (i) increasing childcare availability; (ii) reduction in the “unexplained” wage gap; (iii) reduction in the cost to families of having mothers working outside the home (social disapproval); (iv) combining policies to reduce constraints for women; (v) aligning pension replacement rates to the European average; (vi) higher net immigration.

Scenario 1 — Increasing Childcare Availability
- Policy design and assumptions:
  - Government subsidizes half of the childcare cost (model represents absence of services as families employing a full-time caretaker).
  - Cost assumption: full-time childcare giver annual cost = €12,000 per child, corresponding to gross wage (€21,600) + payroll cost (€4,553) − childcare allowance (€2,300); assume a full-time caregiver takes care of two children on average.
- Quantitative impacts (2050, relative to baseline):
  - FLFP increases by 7 percentage points while men’s hours remain nearly unchanged.
  - Effective labor (hours × participation × human capital) increases by 3.1 percent.
  - Long-term real GDP increases by 2.4 percent.
  - Fiscal effects: higher revenues via income taxes (+0.6 percent), social security payments from women (+2.2 percent), consumption tax (+2.9 percent), and corporate tax (+2.3 percent); childcare subsidy cost = 0.5 percent of GDP.
  - Net fiscal impact: positive 0.4 percentage points of GDP.
  - Note: Scenario 1 includes only direct effects and not all second-round effects.

Scenario 2 — Reducing the “Unexplained” Wage Gap
- Policy: remove the “unexplained” wage gap of 14 percent (e.g., via wage transparency and compulsory gender pay audits).
- Quantitative impacts:
  - FLFP increases by 12 percentage points.
  - Effective labor increases by 18.3 percent.
  - Real GDP level is higher by 14 percent compared to the baseline.
  - Fiscal balance improves by 5.1 percentage points of GDP due to higher collections of consumption taxes, labor taxes, and corporate taxes.

Scenario 3 — Reducing the Social Disapproval of Female Work
- Policy modeled: equalize labor disutility costs between males and females and suppress additional disutility of mothers working (e.g., national education campaigns).
- Quantitative impacts:
  - FLFP increases by 15.5 percentage points.
  - Effective labor increases by 14 percent.
  - Real GDP level increases by 10.4 percent.
  - Fiscal balance increases by 3.2 percentage points of GDP.

Scenario 4 — Combined Reforms (Scenarios 1+2+3)
- Quantitative impacts:
  - FLFP increases by 15.9 percentage points.
  - Effective labor increases by about 20 percent.
  - Real GDP level would be 15.4 percent higher than the baseline.
  - Fiscal balance increases by 5.5 percentage points of GDP.

Scenario 5 — Lowering Pensions' Replacement Rate to EU27 Average
- Mechanism: lowering replacement rate raises saving and participation incentives.
- Quantitative impacts:
  - Female labor force participation increases by 1.5 percentage point.
  - Effective labor increases by 0.5 percent.
  - Real GDP increases by 0.4 percent.
  - Pension expenditures decrease 15.3 percent.
  - Fiscal balance improves by 2 percentage points of GDP.

Scenario 6 — Increasing Net Immigration
- Assumptions:
  - Flow of migrant population between 2019 and 2050 is twice as large as in the baseline.
  - Migrants generally younger than natives with similar education distribution; no migrant discrimination in model.
- Quantitative impacts:
  - Effective hours worked increase by 3 percent compared to the baseline.
  - Real GDP level improves by 3.3 percent.
  - Fiscal balance improves by 2.0 percentage point of GDP.

### Discussion on scenario bounds and mechanisms
- Scenario 2 (eliminating the gender pay gap and assuming productivity gains) can be interpreted as an upper-bound estimate because:
  - Reducing the gap is expected to foster productivity growth via higher participation of highly skilled women, greater investment in human capital, and fewer career interruptions.
  - However, part of the reduction could result in redistribution of rents without enhancing productivity.

### Aggregate effects and policy implications
- Aggregate effect: moving labor market parameters where Austria lags up to the median in Europe could add roughly 10 percent to hours worked relative to current levels.
- Key policy options and recommendations:
  - Address low rates of full-time female work:
    - Expand childcare availability in terms of facilities, staffing, and quality, especially outside Vienna and Salzburg.
    - Increase availability of elderly care to support female full-time work.
    - Monitor wage transparency and perform discrimination testing to help close gender pay gaps and encourage participation.
    - Provide young women with more information about the costs associated with leaving the workforce to improve decision-making.
  - Encourage elderly participation:
    - Recent steps to increase the female retirement age and remove incentives for early retirement are welcome.
    - Further pension reforms may be needed to ensure sustainability and encourage elderly labor force participation.
    - Improve the health of elderly workers to increase participation.
  - Improve integration of migrants:
    - Expand labor-market opportunities and improve professional recognition of migrants’ credentials, alongside language and literacy courses, to increase labor supply.

### Fiscal pressures, long-term expenditure projections, and options for fiscal room
- Aging-related fiscal costs:
  - Expected increase by around 1.5 percent of GDP between 2019 and 2030.
  - Additional increase by 1.3 percent of GDP between 2030–2040.
  - Public health care spending projected increase = 0.1 percent of GDP by 2030 and +0.6 percent of GDP by 2040, from an estimated 7.2 percent of GDP in 2023.
  - Long-term care costs projected increase = 0.3 percent of GDP by 2030 and +0.4 percent of GDP by 2040.
  - Pension costs projected increase = 1.1 percent of GDP in 2030 and +0.3 percent of GDP by 2040.
- Other projected pressures:
  - Defense spending: authorities intend to increase defense spending to 1.5 percent of GDP between 2027 and 2032, up from 0.8 percent of GDP in 2023.
  - Interest payments: annual interest payments expected to increase by 0.5 percent of GDP in 2030.
  - Green transition investment needs: network enhancement estimated = €18 billion (3.8 percent of GDP) to make the network fit for 100 percent renewable electricity by 2030; total investment needs to achieve net zero by 2050 could add between 0.5 and 2.5 percent of GDP to the deficit annually depending on public/private split.
- Options for generating fiscal room (estimated impacts):
  - Reviewing subsidies and tax expenditures: general government subsidies in 2022 = 2.7 percent of GDP (exceeding EU average by 0.5 percentage points). WIFO estimates climate counterproductive subsidies annually between €4.1–5.7 billion.
  - Achieving efficiencies in healthcare spending: bringing government health expenditures to the EU average could yield up to 1 percentage point of GDP in savings.
  - Pension reform: increasing retirement age in line with ¾ of the change in life expectancy could lower pension expenditure by 0.3 percentage points of GDP in 2030 and by 0.5 percentage points of GDP in 2040, up to a gain of 1.5 pp of GDP in 2070. Lowering pension replacement rate to EU27 average could decrease pension expenditure by around 0.1 percentage points of GDP in 2030 and 0.9 percentage points of GDP in 2040 and yield net fiscal savings of about 2 percentage points of GDP by 2050.
  - Increase property tax: shifting tax base to 75 percent of market value and more frequent updates could boost revenue by about 0.8 percentage point of GDP annually.
  - Reintroduce inheritance and gift taxes: average across European countries = 0.2–0.3 percent of GDP.
  - Ensuring full utilization of the RRF: Austria expected to receive €4 billion in grants under the EU RRF; €1.15 billion received so far (€450 million pre-financing + €700 million first payment).

*Source: IMF staff summary of chapter content from 1autea2024002*

### 1. Labor Supply and Productivity Trends __________________________________________________ 6

### 1. Labor Supply and Productivity Trends

### Overview
- Austria faces a significant decline in labor supply growth over the medium term as the growth rate of the working-age population (WAP) is expected to decline; productivity growth has also slowed.
- Working age population defined as 15 to 64 years.
- Migration scenarios: High (low) migration implies net migration higher (lower) due to 33% increase (decrease) in non-EU immigration flows.

### Recent developments in hours and employment
- Recovery since COVID driven strongly by part-time work:
  - Part-time hours accounted for a higher share of total-hours growth during 2021 and 2022 than in previous years.
  - Significantly increased female part-time work is a key driver of the increase in total hours, about a third of the total in 2022.
- Kurzarbeit take-up:
  - Peaked at more than 1,000,000 workers in April 2020 (more than a quarter of the labor force in mid-2020).
  - Fell to the range of about 200,000–400,000 workers the following year (still much higher than pre-COVID levels).
  - During the global financial crisis peak was about 37,000 workers.
- Average hours per worker per week:
  - Full-time workers: declined from 36.7 hours per week in 2019 to 35.9 hours per week in 2022.
  - Part-time workers: remained broadly at the pre-COVID level of about 22 hours per week.
  - Share of part-time employment in total employment rose from about 28 percent pre-COVID to about 31 percent.

### Labor supply parameter gaps (cross-country comparisons)
- Decomposition: Aggregate hours worked per capita (AHWpc) = WAPR x LFPR x (1-UR) x AH
  - WAPR = working age population ratio (WAP to total population)
  - LFPR = labor force participation rate
  - UR = unemployment rate
  - AH = average actual hours worked
- WAP ratio:
  - Austria average WAPR = 65.6 percent (2018–22) vs sample median 64.2 percent.
  - Working-age share among non-citizens = 73.3 percent; Austrian citizens = 63.9 percent.
- Labor force participation rate (LFPR):
  - Austria LFPR ≈ 77 percent during 2018–22 (around the median).
  - Male and female participation well above sample average between ages 15–59, but drop below the sample lower quartile for ages 60–64.
  - Elderly female participation: 19.6 percent (2018–22) vs sample median 45.6 percent.
  - Elderly male participation: 45.5 percent vs sample median 62.9 percent.
  - Raising elderly participation rates to the median would potentially add about 125,000 workers, equivalent to about 2.7 percent of the current labor force.
- Unemployment rate:
  - Austria’s unemployment rates have remained relatively low over the past 25 years.
  - Long-term unemployment reduced from 2.5 percent in 2017 to about half that figure at end-2019.
- Average hours (per worker per week):
  - Median across sample fell from somewhat below 39 hours to about 37 hours per week over time.
  - Austria’s hours worked per week fell to just over 34 hours per week in the last 5 years, below the sample median.
  - In 2018–22, females averaged 30 hours per week (sample median 33.6 hours); males averaged 38 hours per week (about 1 hour less than the median).
  - Closing average-hours gaps relative to the median could potentially increase aggregate hours worked by about 7 percent, though increasing hours substantially would likely require compositional shifts toward more full-time female work.

### Key points and implications
- Demographic aging and slower productivity growth are a drag on Austria’s potential growth; raising labor supply is important to offset these headwinds.
- Large scope exists to increase labor supply by:
  - Increasing female full-time employment (shift from part-time to full-time).
  - Raising elderly (60–64) participation, especially among women.
  - Continued integration of migrants (given higher working-age share among non-citizens).
- Recent labor-market patterns (rise in part-time work, decline in average hours, high Kurzarbeit use) have shaped the post-COVID recovery in hours worked and employment.

*April 19, 2024. AUSTRIA. INTERNATIONAL MONETARY FUND.*

### 6.      Responsibilities related to childcare and elderly care are reported as the predominant

### 6.      Responsibilities related to childcare and elderly care are reported as the predominant 

### Part-time work, care responsibilities, and gender differences
- Over the average lifespan, engagement in part-time employment noticeably increases among females aged 25 to 39, years corresponding to childbearing and childcaring age, and then experiences a marginal decline but never returns to the levels observed at age 25.
- This pattern is distinctly absent among male counterparts.
- 60 percent of women working fewer than 30 hours per week attribute this to domestic duties, childcare, or caring for others, compared to 10 percent of men.
- 4.5 percent of females reportedly change jobs to accommodate childcare or other dependent care needs, compared to 2 percent of men.
- These findings suggest that responsibilities of care may impose constraints on the hours worked by women.

### Childcare supply, availability, and social attitudes
- The supply of formal childcare arrangements is low, particularly for full-time care in some regions.
- Financial cost is not a primary constraint; the main constraint is the availability of childcare services that are open for the full working day, especially in regions other than Salzburg and Vienna.
- Lack of childcare services correlates strongly with the prevalence of part-time work among females.
- Social attitudes towards women working, especially those with young children, also appear to play a significant role in shaping employment choices.
- Chart evidence: Female part-time work rises around 30 years-old while male part-time work remains steady and low (Austria LFS survey, 2019).
- Children in Austria tend to attend childcare less frequently than in other European countries and for fewer hours; this seems to reflect limited childcare availability and social preferences rather than high childcare costs (Eurostat, 2022).

### Gender pay gap, earnings, and pension implications
- In 2022, the gender pay gap in Austria reached 18.4 percent (EU-27: 12.7 percent), the second largest in Europe.
- Approximately one-third of the gender pay gap is attributable to gender-specific labor market variances: (i) females tending to engage in lower-paid service roles and sectors, (ii) high engagement in part-time work, and (iii) shorter average tenures at a single employer.
- Gaps in salaries that cannot be explained by observable individual and job characteristics (the so-called “unexplained” wage gap) reach 14 percent.
- Based on Statistik Austria, 21.2 percent of women between 25 and 64 years old had an academy or university degree in 2020, compared to 17.1 percent of men.
- Gender pension gap: As of 2022, the gender pension gap stood at 41.1 percent in Austria.

### Pension system and elderly labor participation
- Austria’s pension system is relatively generous: Austria has the highest effective annual accrual rate in Europe (1.72 percent).
- The nominal legal accrual rate is 1.78 percent.
- The ceiling accrual rate on average earnings is 1.55 times average earnings.
- Reforms: The standard pension age for women is increasing incrementally from 60 to 65 from 2024 to 2033 to match men’s standard pension age.
- Penalties for early retirement have been reintroduced; the social insurance old-age pension is to be reduced by 4.2 percent for each year it is claimed before age 65.
- An early starter bonus was introduced: a monthly supplement for old-age pensioners who have at least 300 months of paid contributions, including at least 12 months of paid contributions before age 20.
- Health constraints: The share of individuals aged 55–64 with disabilities exceeds that of peers in other European countries (Eurostat charts report shares of Severe limitations / Some limitations / No limitations by country).

### Immigrant population and labor market integration
- Roughly 20 percent of Austria's population was born abroad, with an average age of 36 years versus the native population's average of 45 years.
- In 2022, the employment rate for the foreign-born workforce aged 15–64 was 69 percent, 6 percentage points below the employment rate for Austrian natives.
- Foreign-born persons are less likely to be long-term unemployed than Austrian natives (11.5 percent compared to 19.7 percent in 2022), reflecting often-insufficient eligibility for unemployment assistance.
- Nearly 37 percent of individuals with a migrant background were employed in blue-collar jobs, compared to 18 percent among Austrian natives.

### Overlapping generations model and calibration
- The model features heterogeneous agents by gender (male and female), age (16 cohorts of 5-year intervals, from 0–4 to 80–84), and education achievement (basic, vocational and intermediate, secondary and pre-university, and higher).
- Two household types: couples (female and male, who will have children) and single households (who do not have children). Couples share a single utility function and face an additional disutility if the female works when they have children.
- Childcare cost is included in the budget constraint when the mother works.
- The production side: representative firm hires male and female effective hours and rents capital at rate r*; production function calibrated to match capital share, depreciation, TFP growth, and unexplained gender pay gap.
- Government: collects labor income taxes, social security contributions, VAT, firms’ revenues, and savings interest; spends on goods, childcare subsidies, and pension benefits. Pension payments correspond to nominal accrual rate 1.78 percent times years worked times average lifetime wage.
- Model is calibrated to 2023 micro and macro data and projected to 2050, accounting for demographics, educational achievements, and extension of women’s retirement age to 65.

### Policy scenarios evaluated (impact measured in 2050 relative to baseline)
- Six scenarios: (i) increasing childcare availability; (ii) reduction in the “unexplained” wage gap; (iii) reduction in the cost to families of having mothers working outside the home; (iv) combining policies to reduce constraints for women; (v) aligning pension replacement rates to the European average; (vi) higher net immigration.

Scenario 1 — Increasing Childcare Availability
- Policy: government subsidizes half of the childcare cost (model represents absence of services as families employing a full-time caretaker).
- Assumption: cost of a full-time childcare giver estimated at an annual €12,000 per child, corresponding to the gross wage (€21,600) plus the payroll cost (€4,553) minus the childcare allowance (€2,300); assume, on average, a full-time childcare giver takes care of two children.
- Impact: FLFP increases by 7 percentage points while men’s hours remain nearly unchanged.
- Effective labor (hours × participation × human capital) increases by 3.1 percent compared to the baseline.
- Long-term real GDP increases by 2.4 percent.
- Fiscal effects: government revenues increase via higher income taxes (+0.6 percent), social security payments from women (+2.2 percent), consumption tax (+2.9 percent), and corporate tax (+2.3 percent), offsetting the childcare subsidy cost (0.5 percent of GDP).
- Net fiscal impact: positive 0.4 percentage points of GDP.
- Note: Scenario 1 incorporates only direct effects of decreased childcare costs and does not incorporate all possible second-round effects.

Scenario 2 — Reducing the “Unexplained” Wage Gap
- Policy: remove the “unexplained” wage gap of 14 percent (e.g., via wage transparency and compulsory gender pay audits).
- Impact: FLFP increases by 12 percentage points.
- Effective labor increases by 18.3 percent as both higher and lower skilled females increase labor supply.
- Result: higher household and single female incomes boost consumption and firms hire more employees; equilibrium effective labor rises.

*Source: IMF staff summary of chapter content from 1autea2024002*

### 19.      Reducing the “unexplained”   wage gap also boosts the size of the economy and

### 1autea2024002 - 19.      Reducing the “unexplained”   wage gap also boosts the size of the economy and

### Scenario: Reducing the “unexplained” wage gap (summary of effects referenced in paragraph 19)
- Real GDP level is higher by 14 percent compared to the baseline.
- The fiscal balance improves by 5.1 percentage points of GDP due to higher collections of consumption taxes, labor taxes, and corporate taxes (given the boost in production).

### Scenario 3: Reducing the Social Disapproval of Female Work
- Context and mechanism:
  - 52 percent of Austrian women working part-time did not look for a full-time job because of housework and the need to look after children or other persons.
  - Disapproval of women with children under the age of three to work is close to 50 percent.
  - The model captures this by differentiating labor disutility between females and males and adding a cost in the family's utility function when a female with children works.
  - Policy intervention modeled: equalization of labor disutility costs between males and females and suppression of the additional disutility of mothers working (e.g., national education campaigns reducing stigma).
  - The reform particularly encourages highly educated women and induces investment in human capital, boosting productivity and salaries.
- Quantitative impacts:
  - FLFP (female labor force participation) increases by 15.5 percentage points.
  - Effective labor increases by 14 percent.
  - Real GDP level increases by 10.4 percent.
  - Fiscal balance increases by 3.2 percentage points of GDP compared to the baseline.

### Scenario 4: Reducing Constraints to Greater Female Labor Force Participation (combined reforms)
- Combination: childcare availability improvements + reducing the unexplained gender wage gap + reducing social disapproval of female work (Scenarios 1, 2, and 3 combined).
- Quantitative impacts:
  - FLFP increases by 15.9 percentage points.
  - Effective labor increases by about 20 percent.
  - Real GDP level would be 15.4 percent higher than the baseline scenario.
  - Fiscal balance increases by 5.5 percentage points of GDP compared to the baseline.

### Scenario 5: Lowering Pensions' Replacement Rate to the EU27 Average
- Mechanism: lower pension replacement rate increases incentives to save for retirement and encourages labor force participation.
- Quantitative impacts:
  - Female labor force participation increases by 1.5 percentage point.
  - Effective labor increases by 0.5 percent.
  - Real GDP increases by 0.4 percent compared to the baseline level.
  - Pension expenditures decrease 15.3 percent.
  - Fiscal balance improves by 2 percentage points of GDP.

### Scenario 6: Increasing Net Immigration
- Assumptions:
  - Flow of migrant population between 2019 and 2050 is twice as large as in the baseline.
  - Migrants are generally younger than natives but have a similar education distribution.
  - Model assumes no migrant discrimination.
- Quantitative impacts:
  - Effective hours worked increase by 3 percent compared to the baseline.
  - Real GDP level improves by 3.3 percent.
  - Fiscal balance improves by 2.0 percentage point of GDP.

### Discussion on the bounds and mechanisms (notes from text)
- Scenario 2 (eliminating the gender pay gap and assuming productivity gains) can be interpreted as an upper-bound estimate of benefits from narrowing the gender pay gap because:
  - Reducing the gap is expected to foster productivity growth via higher participation of highly skilled women, greater investment in human capital, and fewer career interruptions.
  - However, part of the reduction in the gender pay gap could also lead to a redistribution of rents without enhancing productivity.

### Conclusion: policy levers and their expected macro effects (paragraph 24 and bulleted recommendations)
- Aggregate effect: Moving labor market parameters where Austria lags up to the median in Europe could add roughly 10 percent to hours worked relative to current levels.
- Key policy options and recommendations:
  - Address low rates of full-time female work:
    - Expand childcare availability in terms of facilities, staffing, and quality, especially outside Vienna and Salzburg.
    - Increase availability of elderly care to support female full-time work.
    - Monitor wage transparency and perform discrimination testing to help close gender pay gaps and encourage participation.
    - Provide young women with more information about the costs associated with leaving the workforce to improve decision-making.
  - Encourage elderly participation:
    - Recent steps to increase the female retirement age and remove incentives for early retirement are welcome.
    - Further pension reforms may be needed to ensure sustainability and encourage elderly labor force participation.
    - Improve the health of elderly workers to increase participation.
  - Improve integration of migrants:
    - Expand labor-market opportunities and improve professional recognition of migrants’ credentials, alongside language and literacy courses, to increase labor supply.

*Source: IMF staff calculations and text from the Austria chapter (selected excerpts).*

### 3. The endogenous parameters are the disutility of labor:

### 3. The endogenous parameters are the disutility of labor:

### Calibration of endogenous parameters
- Female disutility of labor 휓휓푗푗푅푅 is period-invariant and set equal to 휓휓푅푅 to match average hours worked by females in Austria.
  - 휓휓푅푅 = 0.37
  - Matching statistic: Average female workers hours worked = 35.9 hours per week
  - Value found with the model = 35.5 hours per week
- Male disutility of labor 휓휓푡푡푅푅 is calibrated by age group to match male hours worked by age group.
  - 휓휓푗푗푅푅 (males, by age group) = 0.210; 0.145; 0.145; 0.145; 0.145; 0.145; 0.145; 0.220
  - Matching statistic: Average male hours worked (from 20–24 until 60–64) = 33.0; 40.5; 40.5; 43.6; 44.4; 47.1; 43.6; 40.5; 22.4 hours per week, by age group
  - Value found with the model = 33.1; 40.5; 42.1; 43.8; 44.0; 44.0; 44.0; 40.8; 22.3 hours per week, by age group
  - Note: Includes zero for males not working.
- 푞푞푡푡[�푒푒푅푅�] (disutility of female work) is calibrated to match female labor force participation by age group.
  - Range: Ranging from 0 to 0.30 (depending on education level and age group)
  - Female labor force participation by age group (matching statistic) = 0.67; 0.86; 0.75; 0.86; 0.88; 0.87; 0.87; 0.74; 0.16
  - Value found with the model = 0.67; 0.89; 0.75; 0.87; 0.89; 0.89; 0.89; 0.70; 0.00

### Complete lists of calibrated parameters (excerpted values)
- From Table 1 – Selected exogenous parameter values:
  - 퐽퐽 Number of periods = 13 (meaning each generation has 5 years, adults going from 20 until 84)
  - 퐽퐽푅푅푅푅 Retirement age for men = 10 (at age 65)
  - 퐽퐽푅푅푅푅 Retirement age for women = 9 or 10 (at age 60 or 65)
  - 휅휅푡푡 Childcare cost = €48,500 per child
  - 휙휙푡푡 Unexplained gender gap = 1 - 0.0985
  - 푒푒 Education levels = 4 different types, using household survey data
  - 휃휃푡푡푅푅 and 휃휃푡푡푅푅 Returns from experience = Two 4x8 tables calculated using Mincer regressions
  - 훿훿푅푅 Depreciation of female human capital = 0.0420, 0.0363, 0.0307, 0.0250 – respectively for education types 1 to 4
  - 훽훽 Agents’ discount rate = 0.94 for one year
  - 휒휒 Intertemporal elasticity of substitution (of labor) = 3.5
  - 휇휇1 Share of households type 1 = 0.60
  - 휇휇2 Share of households type 2 = 0.40 (0.20 males, 0.20 females)
  - 푟푟∗ Interest rate = 4 percent per year
  - 훼훼퐾퐾 Capital share = 0.353
  - 훿훿퐾퐾 Depreciation rate of capital = 5 percent per year
  - 퐴퐴̇ TFP growth rate = 0.3 per year
  - 휏휏푐푐 Consumption tax rate (VAT) = 0.20
  - 휏휏퐿퐿(푥푥) Income tax rate function = −0.0237푥푥2 + 0.1923푥푥 −0.0451, where x is equal to income divided by average income of the full-time male worker with basic education (equal to €24,820 per year, using household survey data)
  - 휏휏푎푎 Tax rate on savings’ returns = 0.275
  - 휏휏푣푣 Corporate tax rates = 2.76 percent of firms’ revenues
  - 휏휏푠푠푠푠1 Social security contribution paid by the employee = 0.1812 (0.1025 is for pensions only)
  - 휏휏푠푠푠푠2 Social security contribution paid by the employer = 0.2103 (0.1255 is for pensions only)
  - 푝푝푅푅푖푖 푚푚 Minimum pensions = €967 per month for household type 2 and €1472 for household type 1
  - 휌휌 Pensions accrual rate = 1.78 percent per year
  - Note: The dimension of the returns-from-experience matrix corresponds to the 4 types of education and the 8 different returns from experience gained from period 2 until period 10.

### Fiscal pressures and projected expenditure increases
- Aging-related fiscal costs:
  - Expected increase by around 1.5 percent of GDP between 2019 and 2030
  - Additional increase by 1.3 percent of GDP between 2030–2040
  - Public health care spending projected increase = 0.1 percent of GDP by 2030 and +0.6 percent of GDP by 2040, from an estimated 7.2 percent of GDP in 2023
  - Long-term care costs projected increase = 0.3 percent of GDP by 2030 and +0.4 percent of GDP by 2040
  - Pension costs projected increase = 1.1 percent of GDP in 2030 and +0.3 percent of GDP by 2040
- Defense spending:
  - Authorities intend to increase defense spending to 1.5 percent of GDP between 2027 and 2032, up from 0.8 percent of GDP in 2023
- Interest payments:
  - Annual interest payments expected to increase by 0.5 percent of GDP in 2030
- Green transition investment needs:
  - Network enhancement investment needs estimated = €18 billion (3.8 percent of GDP) to make the network fit for 100 percent renewable electricity by 2030
  - Total investment needs to achieve net zero emissions by 2050 could add between 0.5 and 2.5 percent of GDP to the deficit annually, depending on public/private division
  - Staff estimates that public investment in the green transition reached 0.2 percent of GDP in 2023
  - Authorities budgeted €14 billion (in cash) for 2024–27 for Climate and Transformation, from which staff estimates €5 billion could correspond to actual investment, or 0.4 percent of GDP per year
- Digitalization investment:
  - Government cost for digital measures in the 2023 National Strategic Roadmap = EUR 360m (only costed measures)
  - RRF grants for Austria total expected = €4 billion, with €1.2 billion received to date and €2.8 billion conditional on milestones

### Options for generating fiscal room (estimated impacts)
- Reviewing subsidies and tax expenditures:
  - General government subsidies in 2022 = 2.7 percent of GDP (exceeding EU average by 0.5 percentage points)
  - WIFO estimates climate counterproductive subsidies annually between €4.1–5.7 billion
- Achieving efficiencies in healthcare spending:
  - Bringing government health expenditures to the EU average could yield up to 1 percentage point of GDP in savings
- Pension reform:
  - Increasing retirement age in line with ¾ of the change in life expectancy could lower pension expenditure by 0.3 percentage points of GDP in 2030 and by 0.5 percentage points of GDP in 2040, up to a gain of 1.5 pp of GDP in 2070
  - Lowering the pension replacement rate to the EU27 average (with accrual changes starting 2025) could decrease pension expenditure by around 0.1 percentage points of GDP in 2030 and 0.9 percentage points of GDP in 2040 and could yield net fiscal savings of about 2 percentage points of GDP by 2050
- Increase property tax:
  - Shifting tax base to 75 percent of market value and more frequent updates could boost revenue by about 0.8 percentage point of GDP annually
- Reintroduce inheritance and gift taxes:
  - Inheritance/gift tax average across European countries = 0.2–0.3 percent of GDP
- Ensuring full utilization of the RRF:
  - Austria expected to receive €4 billion in grants under the EU RRF; €1.15 billion received so far (€450 million pre-financing + €700 million first payment)
- Aggregate potential fiscal room from selected reforms (Table 3 estimates, in percentage points of GDP):
  - Reducing energy-intensive subsidies = 0.8
  - Achieving efficiencies in healthcare spending = 1.0
  - Pension reforms = 0.4 (2030) / 1.4 (2040) [table shows 0.4 and 1.4 entries]
  - Increase property tax = 0.8
  - Inheritance and gift tax = 0.2
  - Enhancing government finance = n.c. (non-costed)
  - Total estimated range = 3.2–4.2 percentage points of GDP (numbers refer to savings in a given year from the reforms; n.c.: non-costed)

### Environmentally harmful subsidies (annual costs, millions of euros)
- Mineral oil tax advantage for diesel = 540-1100
- Commuter allowance = 510
- Tax exemption for commercial aviation fuel = 408
- VAT exemption for international and reduction for domestic flights = 227-426
- Mandatory construction of parking spaces = 62-937
- Tax exemption for inland waterway transport = 22
- Pre-tax deduction of commercial trucks = n.c.
- Special depreciation rate for business cars = n.c.

*International Monetary Fund*

### 1. House prices in Austria rose sharply during most of the past decade. According to the

### 1. House prices in Austria rose sharply during most of the past decade. According to the

### Housing price trends
- Real house prices (nominal prices for the sale of newly built and existing dwellings divided by the consumer expenditure deflator) grew by 74 percent from 2010 to end-2021 in Austria, compared with 37 percent for the OECD average.
- More recently, real house prices declined by 10 percent between 2022Q1 and 2023Q3 due to a nominal increase of 1.6 percent and inflation of 13 percent.

### Affordability metrics and valuation
- House price-to-income and rent-to-income ratios increased more than the euro-area average over the last decade.
- Standardized ratios (current ratios relative to their respective long-term averages) show similar deterioration in affordability.
- The substantial increase in both house prices and rents suggests partly fundamental drivers (supply-demand mismatches), not only low interest rates or looser credit.
- The house price-to-rent ratio rose substantially in absolute terms over the last decade, indicating possible effects from low interest rates and/or overvaluation shared among regional peers.
- A standard econometric model of house price valuation also points to some overvaluation (see Appendix I in source).

### Housing supply gap and regional heterogeneity
- Staff estimate the housing supply gap for Austria in 2022 was around 6 percent of the total vacancy-adjusted housing stock.
- The gap is measured as the cumulative difference between annual supply of dwellings and the change in number of households.
- The supply gap widened during the past decade and is asymmetric across regions:
  - Vienna: largest supply gap at 17 percent of Vienna households in 2022 (similar to Tyrol).
  - Burgenland: gap around 1.5 percent of households.
- OeNB estimates differ slightly from staff estimates due to different assumptions; OeNB suggests Vienna is the only region with excess demand recently, while other regions may have excess supply. When assumptions are aligned, conclusions converge that Vienna faces the main supply shortage.

### Rental market structure and social housing
- About 46 percent of Austrian households rent, compared to the EU average of 30 percent.
- The Austrian rental market is unitary, with competition between private and social segments.
- Social housing:
  - Focused on lower- and middle-income groups with rents below market level but competitive with private rental sector.
  - Market power and volume of subsidized housing influence private market prices considerably.
- Limited Profit Housing Associations (LPHA):
  - LPHA comprise 190 housing co-operatives and private-limited and public-limited companies.
  - Total housing stock of LPHA: 865,000 units, representing 23 percent of the total housing stock.
  - LPHA stable housing output: 14,000 to 16,000 units per year (more than half of all multi-apartment construction in Austria).
  - LPHA contribute to climate targets and some have high architectural standards; subsidies are provided to LPHA.

### Rental regulations and effects on supply
- Austria has relatively strict tenant-landlord relations in favor of tenants; responsibility for rental quality is shared across levels of government with minimum size and level of comfort required.
- Short-term holiday rentals are regulated and landlords are subject to tourism tax.
- The state applies price-influencing mechanisms (e.g., rent controls) to subsidized construction (social housing).
- Stringent rent controls could reduce profitability of housing investment and are empirically associated with a weaker housing-supply response to demand changes.

### Land-use planning and supply constraints
- Austria is federal with 3 levels of government: national, state, and municipality; spatial and land-use plans can be enacted by different levels.
- All levels prepare a Spatial Development Concept jointly for the entire country; decision-making for land-use is not linear and there is no formally hierarchical planning system, increasing wait times for construction permits.
- Notable features:
  - National government plans and finances major infrastructure and enacts environmental and heritage protection legislation that restricts and steers land development.
  - States hold most powers related to planning and pass framework legislation for spatial and land-use planning.
  - Municipalities hold considerable responsibilities for strategic spatial planning and preparation of land-use plans.
  - Vienna: building new houses in the center is difficult (e.g., Vienna's first district is a UNESCO World Heritage Site with protected architecture), limiting new supply.
- OECD (2017) findings highlighted above-average land consumption and below-average growth in developed land for Austria; core metropolitan areas experienced strong population growth without corresponding increase in developed land, consistent with Vienna's supply gap.
- Urban land area-to-population ratio is one of the lowest among European countries.

### Policy recommendations to address affordability and supply
- Address underlying supply gap rather than focusing solely on demand-side measures.
- Avoid excessive overlap across jurisdictions in land-use regulations to promote greater supply of land for housing.
- Review rent controls to ensure they do not discourage private housing investment.
- Consider increased taxes on undeveloped land zoned for residential housing to increase housing supply.
- The authorities announced a construction bill in early 2024 to provide more dwelling units for sale and rent, including subsidies for construction, labor costs, and renovation costs.
- Caution: less desirable demand-side measures in the bill include temporarily reducing transaction costs and providing interest subsidies for mortgages.
- Efforts to improve affordability should prioritize boosting housing supply and easing disincentives and regulatory constraints that hamper new construction.

### Housing market and financial stability
- Housing consumption has been rising in Austria but remains below the euro-area average.
- Overall household debt levels appear to remain manageable.
- Risks arise because Austria has a much higher share of mortgages with variable rates.
- ECB banking supervision indicated mortgages with high LTV ratios and high LTI ratios increased substantially in Austria in the mid-2010s.
- In August 2022, Austria issued limits on residential real estate loans that increased the share of sustainable loans (see Box 1).
- Staff recommends maintaining these borrower-based macroprudential measures as permanent structural measures despite recent interest-rate-driven market downturns; settings are not especially tight in international comparison given substantial exemptions.
- Loosening credit standards to improve affordability could be counterproductive as looser credit may increase house prices.

### Box 1 — Borrower-Based Measures (August 2022)
- Measures introduced to enhance sustainability of mortgage loans and mitigate house price growth:
  - An upper limit of 90 percent for loan-to-value ratios (LTV), with an exemption bucket of 20 percent.
  - An upper limit of 40 percent for debt service-to-income ratios (DSTI), with an exemption bucket of 10 percent.
  - An upper limit of 35 years for the maturity of loans, with an exemption bucket of 5 percent.
  - A bank-level exemption bucket of 20 percent restricts the overall amount of unsustainable new loans per bank.
- Effects and statistics since implementation:
  - The share of loans with an LTV smaller than 90 percent has reached 80 percent among all new loans (including exemption bucket and small and bridge loans).
  - The share of loans with a DSTI less than 40 percent has increased to 90 percent.
  - About half of banks reported using less than 50 percent of their exemption amount in 2023, attributed to reporting flexibility, minimum €1 million exemption for small banks, and weak demand due to high interest rates.
  - In total, around €1 billion of the exemption amount was not used in 2023.
- Classification note: loans with DSTI ≤ 40%, LTC ≤ 90% and maturity ≤ 35 years are classified as sustainable; any loan violating at least one indicator is classified as not sustainable.
- The measures are set to expire in mid-2025 if no agreement on extension is reached in the upcoming systemic risk review in 2024.
- Staff recommendation: make such prudential limits a permanent feature of the macro-prudential framework to reduce macro-financial risks associated with mortgage markets.

*Source: IMF staff, based on OECD, OeNB, Statistics Austria, European Commission data, and IMF staff calculations.*

### Appendix I. A Model of Fundamental House Prices

### Appendix I. A Model of Fundamental House Prices

### Context and prior assessments
- The ECB and OeNB evaluated housing prices in Austria and identified housing price overvaluation in the past decade.
- OeNB indicator (uses real housing prices, household income, price-to-rent ratio, construction costs, loan-bearing capacity, housing investment-to-GDP ratio, and interest-rate risk) suggests:
  - Overvaluation started around 2016 and reached a peak of 40 percent in 2022.
  - A recent correction occurred during the high-interest rate environment.
- ECB used four valuation methods and estimated overvaluation beginning in 2014, reaching a maximum around 2022, with a range of 18 percent to 50 percent.

### Empirical approach (staff model)
- Staff follow Geng (2018) using panel data covering EU countries from 1970-2023 (data-dependent).
- Baseline model includes supply and demand factors to uncover underlying (fundamental) housing prices.
- Model specification (variables defined as in source):
  - permit: Building permit index with 2015=100 (Log)
  - morr: Mortgage rate on new loans
  - pop: Population (Log)
  - realwage: Real wage, gross wage divided by CPI (Log)
  - ltr: Long-term interest rate
  - shrprices: Domestic share prices index with 2015=100 (Log)
  - cre: Credit to private sector (Log)

### Regression results (panel models)
- Three models examined with different sets of supply and demand variables. Key estimated coefficients (as reported):
  - Baseline Model
    - permit: 0.097*** (0.024)
    - pop: 1.073* (0.520)
    - realwage: 0.778*** (0.136)
    - Observations: 2,112
    - Adjusted R2: 0.652
  - Model 2
    - permit: 0.121*** (0.028)
    - morr: -0.017*** (0.006)
    - pop: 1.118*** (0.430)
    - realwage: 0.698*** (0.136)
    - Observations: 1,378
    - Adjusted R2: 0.694
  - Model 3
    - permit: 0.133*** (0.021)
    - morr: -0.0004 (0.005)
    - pop: 0.514 (0.379)
    - realwage: 0.491*** (0.113)
    - ltr: -0.009* (0.005)
    - shrprices: 0.011 (0.020)
    - cre: 0.186*** (0.043)
    - Observations: 1,214
    - Adjusted R2: 0.753
- Note: * = p-value<0.10; ** = p-value<0.05; *** = p-value<0.01

### Interpretation of results
- Population growth and real wage growth have positive and significant effects on growth of real house prices.
- Mortgage rate (morr) shows a negative effect on real housing price growth in Model 2.
- In Model 3:
  - Long-term interest rate (ltr) captures negative impact on housing prices similar to mortgage rate effects.
  - Credit growth (cre) contributes significantly and positively to housing prices.
  - Growth in construction permits (permit) is positively correlated with housing prices; interpreted as counterintuitive and possibly reflecting that permits react to housing prices (permit issuance following price increases) rather than permits driving prices.

### Model outcomes for Austria
- All three models generate similar fundamental housing price paths for Austria.
- Compared to actual housing prices:
  - Models indicate undervaluation from 2000–2012.
  - Models indicate overvaluation thereafter.
- Model estimate for overvaluation in 2022: around 30 percent, broadly in line with ECB and OeNB estimates.

*Source: Appendix I. A Model of Fundamental House Prices — IMF staff calculations and referenced ECB/OeNB assessments.*

### Appendix II. Estimates of Housing Supply Gaps in Austria

### Methodology for supply estimation
- Use data on existing housing stocks, annual new construction of housing units, completion rates, and vacancy rates.
- Existing housing stock data available for Austria and nine states for years 2011 and 2021 from housing surveys.
- Annual construction permits aggregated over the ten-year period and compared to stock increases between 2011 and 2021 to calculate construction completion rate.
- Annual housing stocks extrapolated using completion rate and annual construction permits.
- Vacancy rate calculated by comparing total housing stocks to number of vacant houses reported in 2011 and 2021 surveys.
- Final housing supply adjusted using the vacancy rate.

### Methodology for demand and gap accumulation
- Number of private households used as proxy for housing demand.
- Supply gaps assumed to accumulate over years: households without housing in year t remain in shortage in year t+1.
- New households join the shortage group in year t+1 based on new supply gap.
- Supply gap reverses only if aggregate housing supply exceeds aggregate housing demand.

### State-level findings (illustrative examples)
- Charts reported for states with smaller housing supply gaps include:
  - Burgenland: Housing stocks vs total households (LHS: Thousands; RHS: Housing supply gap as a percentage of total households)
  - Styria: Housing stocks vs total households (LHS: Thousands; RHS: Housing supply gap as a percentage of total households)
- (Charts show time series 2011–2022; numeric chart values preserved in source figures.)

*Source: Appendix II. Estimates of Housing Supply Gaps in Austria — Statistics Austria and IMF staff calculations.*

### Accelerating the Green Transition (selected findings and policy implications)

### Policy measures implemented and scope
- Austria introduced the National Emissions Certificate Trading Act 2022 (NEHG) in October 2022, introducing carbon pricing for emissions outside the EU ETS.
- NEHG covers emissions outside EU ETS including building sector, transport not in ETS, agriculture, waste, and small industrial plants (comprising 40 percent of total CO2 emissions).
- Energy sources covered include gasoline, gas oil, heating oil, natural gas, liquefied gas, coal, and kerosene. Each source assigned a GHG emission factor; list expandable by regulation.
- Price schedule (October 2022 until December 2025):
  - Emission allowances fixed-issue value starting at €30 and rising to €55 per ton in 2025.
  - 50 percent downward (upward) adjustments to the stepped increase if energy prices rise (fall) by more than 12.5 percent during the first nine months of a given year.
  - The 2026 price will be kept at €55 per ton if no agreement on price change is achieved.
  - From 2027 onwards, NEHG will transition to EU ETS II (covering buildings and road transport sectors).
- Redistribution of revenues: basic lump-sum payout plus regionally differentiated top-up (to reflect public transport density); lump-sum implies low-income households receive more than they pay via carbon pricing.
- A first evaluation of the NEHG expected by mid-December 2024 (will cover specification of the market phase in line with Austria’s climate targets and evaluation of maintenance of exemptions).

### Emissions targets and recent trends
- EU Effort Sharing Regulation (ESR) target: 48 percent reduction in non-ETS emissions compared to 2005 by 2030.
- Austria’s metrics:
  - Austria contributes 2.2 percent of the EU’s GHG emissions.
  - Between 2005-2021: sluggish pace of reducing non-ETS emissions; Austria’s share of EU emissions increased since 2000.
  - 2022: ESR emissions declined year-on-year by 5.0 percent.
  - 2023: ESR emissions declined year-on-year by 4.6 percent.
  - ESR emissions were lower by 22.4 percent in 2023 compared to 2005.
- Previous IMF staff estimates: a carbon price in the range of €100–€150 per metric ton by 2030 could reduce emissions by about 20 percent relative to the baseline (no policy measure) emission path.

### Renewable energy targets and recent progress
- Austria aims for 100 percent renewable electricity generation by 2030.
- Austria fulfilled its 2020 target of achieving an overall renewable energy share of 34 percent.
- Electricity generation shares have increased notably for solar, wind, and hydro.
- Mission 2030 climate strategy includes flagship projects and increased subsidies for green transformation and green mobility (with social dimension).

### Recent and planned measures
- Industry transformation plan (late 2022) with €3 billion dedicated to transforming the energy-insensitive sector up to 2027.
- Renewable heating law prohibits fossil fuel usage in newly constructed buildings since January 2024.
- Subsidies for households in existing buildings to upgrade heating systems to renewable energy; additional spending volume for 2024-2030 agreed; top-ups for low-income households.
- Renewable Gas Act and Green Hydrogen Act under discussion.

### Resource needs and fiscal implications
- Significant new investment required for 48 percent ESR reduction by 2030 and 100 percent renewable electricity by 2030 (generation and network costs).
- Staff estimate of fiscal support needed: around 0.7–2.7 percent of GDP from the budget each year for green investment to achieve 2030 goals.
- Public investment in the green transition was 0.2 percent of GDP in 2023.
- Fiscal cost estimates are highly uncertain and depend on the extent of carbon price increases and regulatory measures that would mobilize private-sector participation.

### Financing and mobilization to date
- EU Recovery and Resilience Facility (RRF): €3.96 billion granted to Austria; nearly 40 percent of this amount classified as green spending, available up to end-2026.
  - Over €1 billion of the €3.96 billion has been disbursed.
  - Approximately €160 million from RRF disbursements allocated to support the green transition.
- EU Structural Policy Funds: €789 million to invest in green transition as part of Austria's total allocation of €2.9 billion for 2021-2027.
- Other EU programs: Connecting Europe Facility, Horizon Europe, and others provide additional support.
- National green security issuances: approximately €5.1 billion raised in 2021 and 2022 for green projects.

### Implementation bottlenecks and recommendations
- Reducing delays in permitting:
  - Permitting is hampered by complex spatial planning and procedures; wind energy permitting currently takes around 5 years on average versus the EU Renewable Energy Directive objective of 2 years.
  - Delays partly due to staffing problems and complex federal-regional division of powers.
  - Steps taken: adoption of streamlined law on environmental impact assessments; renewable expansion acceleration act under consultation to investigate permitting steps and roadblocks (e.g., combining multiple projects by same developer into single permitting process).
- Expanding the electricity grid:
  - Integration of more renewable generation will require grid expansion; current grid not under significant strain yet, but challenge will grow as renewable share increases.
  - Addressing regulatory hurdles will facilitate development of large ground-mounted network systems.
- Addressing skilled labor shortages:
  - 2022 reports indicated shortages in 17 occupations crucial for the green transition (e.g., civil-engineering technicians, roofers, mechanical engineers).
  - Austria’s participation in upskilling and reskilling programs in energy-intensive industries: 16.2 percent (exceeding EU average of 10 percent).
  - Further measures: skilled migration, expanded participation in green-transition training and education, and leveraging the green labor foundation for employer-employee training collaboration.

*Source: Accelerating the Green Transition and related appendices — IMF staff analysis and country data.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1autea2024002.pdf_