Following consultations with the Austrian government the IMF has published a staff report and a selected issues paper looking at the tax revenues and government expenditure.

The selected issues paper notes that the Austrian government announced an important tax reform in March 2015 which included a decrease in the lowest income tax rate applicable for annual income between EUR 11,000 and EUR 18,000. This tax relief needs to be funded and there has been some discussion of the appropriate level and structure of tax rates. There is also discussion of whether high tax rates reduce growth in the medium term.

Although in most European countries the tax wedge on labor has decreased in recent years it has continued to increase in Austria. Social transfer payments by the government are also higher than the international average although they do not result in better outcomes. Owing to above-average taxation of labor income of payroll employees and of the non-employed (especially pensioners) the tax to GDP ratio in Austria is 42.5% (based on 2013 data) compared to an average of 33% for OECD countries.

The implicit tax rate (ITR) on labor was 41.5% based on latest data compared to 36.1% in the European Union (EU). This high rate of tax on labor was due to high social security contributions and to high payroll taxes including contributions to the Family Burdens Equalization Fund and municipal taxes.

The 2015 tax reform will lower the tax on labor but will not have any effect on social security contributions. Cuts to these contributions have been projected for 2017/18 but the planned cuts are modest. In the area of labor taxes the IMF considers that a revenue-neutral shift from social security contributions to consumption taxes or an outright tax reduction would be a natural way to rebalance the tax burden across the different taxes and contributions.

The ratio of consumption taxes to GDP and the 20% standard rate of VAT in Austria are around the OECD average. A relatively large number of goods and services are subject to the reduced VAT rates in Austria. Tax revenues from excise duties and the rates of duty are below the OECD average.

Tax on capital and wealth is below the OECD average and low by comparison to other European countries. Within this category the revenue from taxes on property and wealth are particularly low partly due to the numerous tax exemptions. The introduction of various exemptions has lowered the amount of revenue collected from the wealth tax. There is no inheritance tax and the wealth brackets are not scaled. Austria’s real property tax, and especially the recurrent property taxation, is low compared to the EU average.

The selected issues paper suggests that reform of labor taxes could include cuts in social contributions, offset by increases in consumption taxes combined with government expenditure cuts. Fiscal federalism should be reformed by providing more tax autonomy at the provincial level and strengthening the link between revenue and expenditure at that level.