## Statement by Johann Prader, Alternate Executive Director for Austria — August 3, 2000

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### Some Major Changes in Economic Policy
- Authorities agree with staff assessment of Austria's economic situation and its growth and inflation prospects, and with the general thrust of the Fund's recommendations; staff report reflects policy discussions during the mission's visit to Vienna in mid-May.
- Government has speeded up budget consolidation to take advantage of the economy's present strength.
- The federal government's new four-year draft budget was sent to Parliament on July 17.
- Revisions to previous coalition commitments:
  - Originally agreed deficit of 1.3 percent of GDP for 2003 has been revised.
  - New commitment: this year's general government deficit of 1.7 percent of GDP will be followed by a 1.3 percent deficit in 2001 and balanced budgets in 2002 and 2003.
- These targets are intended to restore Austria among mainstream EU countries in budget consolidation; new targets are consistent with the Fund staff's assessment and largely agree with the EU Commission's appraisal of Austria's stability program at the beginning of May.
- Fiscal measures already approved by Parliament (previously described in staff paper as "planned"):
  - Introduction of strong disincentives to early retirement beginning in October this year, including a gradual increase of 1.5 years in the minimum age for early retirement.
  - Pension reduction for early retirement increased by 50 percent.
  - Early retirement due to reduced ability to work was abolished.
  - Survivor benefits to be reduced based on total income of the survivor.
  - Harmonization of pension systems stepped up: the more generous scheme for civil servants will gradually be aligned with the system for the general public.
- Consolidation will be pursued primarily through spending reductions given Austria's high GDP share of public spending.
- Public sector restructuring and employment reductions:
  - Public payroll to be reduced by 9,000 jobs over the legislative period.
  - An additional 4,000 jobs to be reduced in public enterprises.
  - Reviews of government tasks to determine necessity, utility, and appropriate government level; identification and elimination of overlaps to improve efficiency.
- Federal government negotiating with other levels of government to realign fiscal relations for the next four years and to secure states' and municipalities' "ownership" of consolidation efforts.
- Other consolidation elements:
  - Reducing remaining subsidies.
  - Stronger emphasis on investments in research and development (R&D).
  - Improved targeting of social transfers.
  - Reducing interest costs of federal debt by using proceeds of privatization and license sales for debt reduction.
  - Reducing practice of earmarking for special funds.
  - Making more money available for families, R&D, and innovation.
  - International benchmarking of market regulation.
- Government objective: coordinate consolidation across federal government, states, municipalities, and social security administration to achieve a balanced budget by 2002.
- Consolidation and structural reform framed as critical to prepare Austria for globalization and the New Economy; privatization and deregulation to be accelerated for structural advantages; social consensus and cooperation with social partners remain important but must defer to the need for speed in adapting to global economic changes.
- Reformation of financial market supervision and faster, more comprehensive privatization and deregulation cited as major objectives.

### A Positive Role for the IMF
- IMF advice has played an important role in the consolidation effort.
- Austrian authorities sought special advice from the Fund concerning intergovernmental fiscal relations and pension reform to make these issues transparent and promote public discussion, preserving momentum for fiscal and social reform.
- Authorities confident that the broad international experience of the Fund staff will contribute to restructuring Austria's economy.
- Authorities express thanks for the IMF's swift response to Austria's request.

*Statement by Johann Prader, Alternate Executive Director for Austria — August 3, 2000*

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_Source: https://www.imf.org/-/media/websites/imf/imported-publications/external/np/a4pilot/2000/_stm0095.pdf_