Austria’s public finances are in the spotlight again, and not in a good way. The government is facing a much bigger hole in the national budget than expected - up to €12 billion this year alone. With the EU potentially stepping in, what does this mean for people living in Austria, and what can the government do about it?
Here's what you need to know to make sense of the country's tricky financial situation.
What's going on with Austria’s budget?
Back in January, the Austrian government announced it needed to save around €6.4 billion to keep the country’s deficit - the gap between what the government spends and what it brings in - under control.
According to a Kurier report, this was supposed to keep the national deficit below the EU’s key limit of 3 percent of GDP.
But since then, things have only gotten worse. A recession looks likely, revenues have dropped, and new forecasts from Austria’s National Bank (OeNB) predict economic growth will shrink by 0.1 percent in 2025. This means less money flowing into the government's coffers, making the deficit even larger than previously thought.
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According to experts such as Finance Minister Markus Marterbauer (SPÖ), this could mean increasing the budgetary hole by €4-6 billion, pushing the total required savings to up to €12 billion this year alone.
Why is Austria’s debt suddenly so big?
Several factors have combined to widen the gap:
First, the economy has weakened more than anticipated. This means less tax revenue, higher social spending, and less economic activity overall. Economic experts initially thought there would be slight growth in 2025, but now a recession is back on the cards. Collapsing exports, supply chain issues, and falling consumption are key reasons for this downturn.
Second, the federal states and municipalities in Austria are spending more and bringing in less revenue than anticipated. This also increases the country’s overall deficit.
What happens if Austria doesn't get its deficit under control?
If Austria continues to breach the EU’s deficit limit, it could face what's called an "excessive deficit procedure" from the European Union. This isn't just a bureaucratic headache - it puts pressure on Austria to make quick and significant spending cuts or tax hikes.
According to Der Standard, once the EU initiates this process, Austria would be obligated to reduce its deficit by at least 0.5 percent of GDP annually - around €2.5 billion a year - until the situation is resolved.
Right now, eight EU countries - including France, Belgium, and Italy - are already in similar procedures.
Is Austria likely to face EU sanctions soon?
At the moment, it's looking quite likely. Finance Minister Marterbauer has said publicly he thinks it might be unavoidable but manageable.
Even the conservative ÖVP, which had initially hoped to avoid it, appears to be coming to terms with the idea. Economist Philipp Heimberger from the Vienna Institute for International Economic Studies (wiiw) stated clearly: "We will not be able to credibly bring the budget deficit below three percent at the end of the year."
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Would this mean immediate austerity?
Not necessarily. Even under the EU’s excessive deficit procedure, Austria would not have to meet the deficit limits immediately but would instead need to make steady progress each year.
The existing €6.4 billion austerity package already planned by the government for this year would actually meet those requirements comfortably.
However, some economists argue that the government should go further. Hanno Lorenz, an economist from Agenda Austria, argues that more savings are possible and necessary. He points to high spending in ministries, subsidies for businesses, and financial equalisation among states as areas where extra cuts can be made.
What does this mean for people living in Austria?
If the government needs to save even more money, it could mean cuts to public services, lower investment in infrastructure, and potentially cuts to welfare benefits. Budgets for healthcare, education, and social welfare often come under attack when governments look for places to cut back spending.
On the other hand, if Austria takes a balanced approach, these impacts can be limited. For now, the government seems unlikely to push much harsher austerity measures immediately, as doing so might further weaken the economy and lower public approval.
Will EU pressure force specific cuts or reforms?
The EU typically won't dictate exactly where countries need to cut spending, but it can recommend broad areas of reform - such as pensions or federal structures in Austria. Economist Heimberger points out that "Brussels will not scrutinise every order for an eraser in a ministry," meaning the EU won't micro-manage, but Austria will still need a credible plan to improve its budget.
Are there any upsides to this EU procedure?
Economists say an EU deficit procedure doesn't necessarily mean higher borrowing costs for Austria. Johannes Holler of the Fiscal Advisory Council notes that there's no evidence that countries under the EU procedure face higher interest rates. National Bank Governor Robert Holzmann confirmed that Austria faced no interest rate spike when it was last under the same EU procedure (2009–2014).
However, Holler cautions that there could still be "reputational damage," making Austria potentially less attractive to investors.
So what's next?
The Austrian government will likely have to navigate difficult decisions in the coming months. If the EU confirms Austria’s deficit is excessive - expected around May - the government will have about six months to present a credible budget plan. This will be followed by quarterly updates showing progress.
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