On 3 March 2020 the IMF issued a report following consultations with Austria under Article IV of the IMF’s articles of agreement.

The report notes that Austria’s economy has been performing well recently but the growth rate decreased in 2019 owing to a weaker external environment. Growth in 2019 is estimated at 1.6% and it is expected to be around 1.25% in 2020. There are downside risks from weaker growth in Germany, the fallout from Brexit and the economic effects of the spread of coronavirus. Growth is expected to be around 1.75% in the medium term.

The IMF report welcomes Austria’s efforts to decrease personal income taxes but considers that more should be done to reduce the labour tax wedge. The tax wedge is calculated as the total taxes paid by employees and employers on labour costs less family benefits, expressed as a percentage of the labour cost to the employer. Austria’s labour taxation is below the average for OECD countries and recent changes have lowered social security contributions. The planned reduction of income tax for lower income brackets is welcomed by the report but the IMF considers that the labour tax wedge will rise over time due to bracket creep. The report therefore recommends that the personal income tax brackets should rise each year in step with inflation to provide greater certainty.

The report notes that planned reductions of corporate income tax will bring the taxation level closer to the OECD average and will increase competitiveness.

To reach the government’s objective of carbon neutrality by 2040 the report recommends a shift to carbon-based taxes such as increases in carbon taxation by at least EUR 25 per metric tonne per year from 2021, combined with some non-tax environmental measures. Revenue raised from the higher carbon taxation could be used to finance other environmental incentives and accelerate reductions in income tax. Carbon trading schemes could also be used.