States Seek Reform of Stability Pact Amid Financial Challenges

In advance of a crucial meeting in Vienna involving several provincial governors and Finance Minister Markus Marterbauer, the finance representatives from the provinces reiterated their demands for reforming the Stability Pact during their assembly in Salzburg. They are advocating for an updated financial distribution model in the fiscal equalization process, set to take effect in 2029, to secure increased funding from the federal government.

The representatives from the provinces highlighted their commitment to contribute to budgetary stabilization while addressing the significant financial pressures in key areas such as healthcare, elder care, and early childhood education--sectors that are critical to citizens' daily lives.

Wilfried Haslauer, the governor of Salzburg and current chair of the finance representatives, emphasized that these areas have seen the highest cost increases but are inadequately funded under the existing financial distribution model, which allocates approximately 68% of funding to the federal government, around 20% to the provinces, and slightly over 12% to municipalities. He noted that without a revision of responsibilities and funding structures, the provinces would struggle to comply with the Stability Pact, as highlighted by a recent study from the Austrian Institute of Economic Research (Wifo).

Moreover, the provinces asserted that they are not the primary contributors to the national budget deficit, with only 12% of the deficit attributed to provincial and municipal budgets. They argued that if a renegotiation of the Stability Pact occurs, it should not unfairly burden them with disproportionate fiscal responsibilities.

Haslauer mentioned that there are outstanding financial claims amounting to EUR66 million from the EU Resilience and Recovery Fund that still need to be settled by the federal government. Additionally, with the current fiscal equalization agreement set to expire in 2028, it is imperative to begin discussions with the federal government to potentially restructure responsibilities and financial allocations.

He also indicated a willingness to revisit suggestions made during the Austrian Convention from 2003 to 2005, noting that the provinces are not opposed to changes but require a funding model that better reflects their financial needs in crucial service areas.

The finance representatives called for a solid data foundation before entering negotiations, expressing concern over the lack of a current revenue-sharing forecast. They insisted that the finance ministry should provide accurate and reliable financial projections rather than vague estimates.

Furthermore, the provinces are prepared to undertake significant budget consolidation measures. Gaby Schaunig, the Vice Governor of Carinthia, confirmed that all federal states will implement substantial fiscal restraint initiatives. There is also a push to revive a political coordination committee for fiscal equalization that has not convened in recent years.

Willibald Ehrenhöfer, the governor of Styria, echoed the need for improved communication from the federal government, stressing that they should be informed in advance about any obligations or sanctions related to the Stability Pact compliance.