AUSTRIAN APPROACH TOWARDS THE QUALITY OF PUBLIC
EXPENDITURES
Ulrike Mandl (Federal Ministry of Finance Austria)Paper completed: October 2004
1. Introduction
Many recent studies have focused on the correlation between (sustainable) growth and the structure of
public finances. However, macro analyses have not been generated sufficiently satisfactory results.
National case studies should therefore help to get a better insight. This case study will point out the
Austrian approach to the "quality" reorientation of public finances. The paper will focus on the
expenditure side, noting, however, that the tax structure, tax incentives and the overall tax burden are of
equal importance for enhancing the growth potential of the economy.
The Austrian economic policy follows a three-pillar strategy:
- Balancing the budget balance over the business cycle
- Reducing the tax burden by 5 percentage points to 40 % of GDP until 2010
- Enhancing GDP and employment growth through measures to strengthen the supply-side of the
economy.
Table 1
in % of GDP 1999 2000 2001 2002 2003 2004
Total expenditures (general government) 53,2 51,3 50,8 50,6 50,7 50,2
Total receipts (general government) 50,8 49,7 50,9 50,1 49,5 48,8
Tax burden 43,7 42,8 44,8 43,7 43,1 42,8
Budget balance (Maastricht) -2,2 -1,5 0,3 -0,2 -1,1 -1,3
Government debt ratio (Maastricht) 66,5 65,8 66,1 65,7 64,5 64,3
Primary balance 1,3 2,1 3,7 3,1 2,0 1,7
Source: MoF 2004
2. Theoretical background
Most analyses of public budgets are based on static concepts, following the lines of Musgrave. These
concepts tend to neglect the time-dimension and dynamics that could result in fundamental shifts in
future fiscal policy due to present commitments. The resulting policy changes will then go hand-in-hand
with major adjustment and transaction costs and will, in pursuance, drag on GDP growth, employment
and welfare. In addition, the credibility of fiscal policy will be hampered severely, as past political
commitments will not be able to be fulfilled.