Austrian Finance Minister Confirms Higher Regional Budget Deficits

The Austrian Minister of Finance has acknowledged that the total new debt of the country's federal states is expected to be significantly higher than previously forecast. This update follows recent communications from the federal states, with the ministry now awaiting more detailed breakdowns of the figures.

While there are concerns that the national deficit could rise from 4.5 percent to 4.9 percent of GDP, the Finance Minister has not confirmed this scenario. The ministry is currently analyzing updated data published by Statistics Austria for the third quarter, aiming to reassess the budget situation based on these revised numbers.

The Finance Minister emphasized that restoring fiscal stability is a nationwide responsibility, requiring coordinated efforts from the federal government, the states, and local municipalities. There is a commitment to meeting the European Union's requirement of reducing the deficit below three percent of GDP by 2028. The Minister also stressed the importance of avoiding blame and highlighted that multiple states, including Vienna and Lower Austria, are contributing to the increased deficits.

The federal government has already made progress toward consolidation, according to the Finance Minister, with the federal budget for 2025/2026 surpassing initial targets. Recently, a list detailing the net financing balances of the states for 2025 has circulated in the media, illustrating the differences between state revenues and expenditures. Vienna stands out with a projected negative balance of 3.2 billion euros, followed by Styria and Lower Austria, with deficits nearing one billion euros each. Some of these figures had already been communicated by the states themselves.

Vienna's administration clarified that its budget deficit was made public earlier in the year, with an initial projection of minus 3.8 billion euros, later improved by approximately 600 million euros as announced in October. This improvement, according to the Vienna City Hall, was communicated to the federal government on several occasions. The city emphasized that spending dynamics in core areas such as early childhood education, healthcare, and long-term care have intensified, placing additional strain on state and municipal budgets.

Lower Austria's leadership echoed similar concerns, noting that states are facing significant cost increases, particularly in healthcare and childcare. Since 2020, expenditures have reportedly risen by 50 percent in healthcare and 40 percent in childcare within the state. According to Lower Austria's governor, the increase in responsibilities assigned to states and municipalities has driven up their spending. The governor also pointed out that the majority of national debt is held by the federal government, suggesting the need for a collaborative solution on the future of the national stability pact. She emphasized the importance of resolving financial figures and continuing discussions between the federal and state governments to determine the next steps.

Vienna's mayor also highlighted that the city functions both as a state and a municipality, arguing that comparisons with other states should take into account the municipal deficits within each state. He noted that, on a per capita basis, Vienna's debt ranks in the middle among Austrian states. The mayor further stated that the primary share of deficits rests with the federal government, rather than with the states or municipalities. He anticipated that the matter would be thoroughly addressed at the upcoming Conference of State Governors in Styria.

The recent developments present a challenge for the Ministry of Finance, as earlier projections in October suggested that the deficit target of 4.5 percent would be met, mainly due to lower-than-expected federal deficits, while states were already falling short of their targets. The figures at that time were mostly based on data from the first half of the year, introducing a degree of uncertainty.

Relations between the government bodies appear strained, as evidenced by the recent suspension of negotiations on the stability pact. Talks were paused after the states canceled a scheduled meeting, citing scheduling conflicts. Efforts are underway to reschedule discussions promptly. The upcoming Conference of State Governors in Styria provides an opportunity for comprehensive deliberations on the fiscal outlook and future budgetary cooperation between the federal and state levels.