On 13 June 2022 the IMF published a report following discussions with Austria under Article IV of the IMF’s articles of agreement.

Although Austria’s economy was seriously impacted by the pandemic, partly due to the size of the tourism sector, it has rebounded with strong growth in recent quarters. The government has applied effective policies to lessen the economic impact of the pandemic and to support households and firms.

The Ukraine war has brought a further shock to the economy and increased downside risks. The war has dampened the outlook for the European trading partners and Austria is vulnerable owing to its high dependence on Russian gas. Growth is projected to be around 4% in 2022 and to moderate further in 2023.

Risks are tilted to the downside. A potential escalation of the war in Ukraine could further depress the European outlook and damage consumer and business confidence. A cessation of natural gas supplies could have adverse effects on households and on production. Further supply chain disruptions and increases in energy and commodity prices could reduce growth. There are also risks from developments in the pandemic.

Priorities for economic policy should include targeted and temporary relief measures to vulnerable households and firms; measures to build resilience to energy shocks; implementation of the eco-social tax reform and other climate friendly measures; and quick integration of refugees into the local market.

Some measures to support households and firms, including a temporary cut in the tax rate on household energy, are costly and not well targeted. They could result in distortion of price signals. The IMF report recommends that additional support should allow international prices to be passed through to consumers and should be targeted and temporary.

The IMF report welcomes the planned introduction of an eco-social carbon tax intended to help reach the emissions reduction target and encourage the energy transition. The carbon tax applies to emissions in the transportation and building sector, which are both outside the current EU-ETS scheme and are responsible for around 40% of carbon emissions in Austria. The tax was designed to be revenue neutral in the medium-term and there are provisions for transfers to households to help towards energy bills. There is also a price stability mechanism.

The IMF report advises against any increase in the broad-based compensation to households over and above the objective of medium-term neutrality, as such further compensation would be poorly targeted and erode fiscal space. The report recommends that the eco-social reform should be implemented as quickly as possible, to avoid hindering the climate and energy transition objectives. After the fixed price scheme has been phased out to make way for a market-based scheme, the IMF recommends that the authorities should make plans to avoid an abrupt transition and ensure that the market price does not decrease below the terminal fixed price of EUR 55 per ton.

The IMF report welcomes the plans for personal income cuts in the second and third-income brackets that are part of the eco-social tax reform. The report points out however that the labour tax wedge (the difference between the labour costs to the employer and the corresponding net take-home pay of the employee) will continue to rise over time due to bracket creep and will increase faster due to higher inflation. The IMF is therefore supportive of the plan to index the personal income tax brackets to inflation.