23 November 2023 Budget 2024-2027

The Intergovernmental Fiscal Relations Act (IFRA) 2024-2028

Since December 2022, intensive negotiations on the Intergovernmental Fiscal Relations Act 2024-2028 have been taking place at several levels and in three working groups. The IFRA partners – the federal government, states and municipalities – are primarily discussing funding and the need for reform in the areas of health, nursing care, education and climate action.

On 3 October 2023, the IFRA partners reached a general agreement on the financial volume. This general agreement comprises an average volume of € 3.4 bn pa.. In total, the Intergovernmental Fiscal Relations Act will cost the federal government € 12.9 bn over the years of the MTEF period 2024-2027, most of which will be made available for the Future Fund. € 3.8 bn will be spent on healthcare, while the nursing care fund will receive € 2.9 bn.

Financial relief for households

The Federal Government has ensured that the real disposable income of households has remained stable or even increased despite high inflation by introducing a large number of relief measures for various population groups. A total of € 1.0 bn has been budgeted for further relief measures in the MTEF 2024-2027.

For 2024, a total of € 0.6 bn has been budgeted for expenditure-side energy relief measures for private households, specifically for the electricity cost subsidy and for cushioning the increased network loss costs.

However, socially disadvantaged families and single parents with low incomes are particularly affected by the rise in prices. In addition to individual fates, child poverty also leads to economic costs in the long term, e.g. through fewer educational opportunities, which can be minimised through targeted support.

The Federal Government has adopted a package of measures to reduce and prevent child poverty. In total, the funds made available for the measures in accordance with the Living and Housing Costs Compensation Act amount to € 0.3 bn in 2024.

Economic competitiveness

The switch from fossil fuels to renewable energy sources strengthens energy independence, while the decarbonisation of industrial processes creates new competitive advantages and jobs through innovative solutions. The diversification and digitalisation of supply chains makes companies more robust, strengthens resilience and thus increases security of supply. The "twin transition" – the linking of sustainable and digital transformation – towards a climate-neutral economy supported by digital solutions and workflows is becoming increasingly important.

The two energy cost subsidies for companies and the energy cost lump-sum subsidies for micro and small enterprises as well as the electricity price compensation noticeably cushion the increase in energy costs and compensate for any resulting competitive disadvantages.

Over the period of the MTEF 2024-2027, € 3.1 bn has been earmarked for energy cost compensation measures, the national implementation of the European Chips Act and for funding the film industry (e.g. FISA+).

Science, research and development

The importance of R&D investments for innovation and competitiveness of companies and thus for Austria as a business location is extraordinary. The economic return on public R&D expenditure is particularly significant: as Keuschnigg et al. (2020) show, one euro of additional public expenditure on research leads to a long-term increase in GDP of six euros. Especially in times of multiple crises and great uncertainty, companies tend to reduce their R&D expenditure. In recent years, this decline has been compensated for by higher public spending on research. The scientific basis for specific research activities is provided by basic research, which is primarily carried out at universities.

With the new budget, the Federal Government is emphasising the importance of science and research. In this priority budget area, which includes in particular universities, universities of applied sciences and research / research funding institutions, a budget of € 28.9 bn has been provided over the four-year period of the MTEF 2024-2027.

Climate and transformation

The Federal Government has already achieved a trend reversal in the development of Austrian greenhouse gas emissions through various measures, bringing Austria closer to the European climate targets. However, the MoF's Long-Term Budget Projection 2022 shows that without further emission reductions, there is a budgetary risk of missing the target of around € 4.7 bn by 2030. In order to close this gap, cost-effective subsidies as well as tax and regulatory policy measures are required that are supported by a broad social consensus and do not diminish the international competitiveness of Austrian industry, but rather strengthen it in the long term.

In budgetary terms, the Federal Government has successively increased funding for climate action and launched a comprehensive climate and transformation offensive in 2023. The focus here is on implementing climate and energy policy transformation processes, particularly in the area of decarbonising energy-intensive industry and mobility, supporting households in switching to sustainable energy systems and improving energy independence and energy efficiency. Over the MTEF 2024-2027 period, the transformation funds totalled € 14.1 bn.

Security

A war in Europe also confronts Austrian security policy with a new reality. This requires not only a strengthening of comprehensive national defence, but also a refocusing on military national defence to protect the Austrian population and safeguard the sovereignty of the Republic of Austria. The uncertain geopolitical situation is currently also reflected in the escalation of the Middle East conflict.

As part of the National Defence Financing Act, the Federal Government has committed itself to improving military capabilities and sustainably strengthening the national defence budget. This has already enabled a significant increase in investment in the capabilities of the Austrian Armed Forces in the current year and provided the Austrian Armed Forces with a longer-term financing perspective and planning security.

In addition to military national defence, the path already taken in previous years will be continued to further strengthen resilience and public security. Targeted investments will be made in measures to strengthen resilience with a focus on IT security and crisis preparedness. The MTEF 2024-2027 will provide funds totalling € 34.4 bn.

Interest payments

After years of low interest rate policy, changes in economic conditions have now led to ten key interest rate hikes and thus also to a changed environment for budget policy. Accordingly, the general government interest burden will more than double from its long-term low of 0.9% of GDP in 2022 to 2.0% of GDP in 2027.

In the administrative federal budget, the increases for interest payments and premiums could already be seen in 2022, when the interest rate environment changed around the middle of the year and payments almost doubled from € 3.2 bn in 2021 to € 6.0 bn. Financing costs totalling € 37.7 bn are expected for the four-year financial framework period 2024-2027.

Pensions

Due to the current high inflation rates, the statutory aliquotisation of the first-time pension adjustment for 2024 and 2025 has been suspended. This means that all new pensioners in 2023 and 2024 will receive the full initial pension increase, regardless of the specific month in which they start their pension.

The pension adjustment for 2024 adopted by the Federal Government will ensure that the purchasing power of retirees' pensions is preserved in the coming year. In addition, a protective provision will be introduced for people retiring in 2024. The annual revaluation of the pension account is based on past contribution trends and is therefore always delayed (relevant is the increase from the third to the second preceding calendar year). In the current high and volatile inflation environment, this delay can lead to unintended effects. For this reason, the protective provision for the year of entry 2024 compensates for the unfavourable constellation of adjustment factor and revaluation figure due to inflation.

These measures, together with the general increase in the number of pension recipients, will lead to payments totalling € 130.2 bn over the four-year financial framework period 2024-2027.