Austria: Restoring the public finances in the face of ageing

Austria enjoys high living standards, strong institutions and a highly skilled workforce. But the economy was hit hard by the energy price shocks following Russia’s war of aggression against Ukraine. After a strong rebound from the pandemic, activity slowed sharply in 2023–24, leading to a prolonged recession and a sizeable fiscal deficit that stood at 4.5% of GDP in 2025.

By Falilou Fall, OECD Economics Department

While Austria has historically taken a relatively prudent approach to the public finances and ran a small surplus in the years before the pandemic, the government debt ratio is now about 80% of GDP and on a rising trajectory. A sustained adjustment is now needed to put the public finances on a more prudent path to meet Austria’s commitments under the revised EU governance framework.

Fiscal consolidation has begun and aims to bring the deficit below 3% of GDP by 2028 as part of 7-year steady fiscal adjustment to stabilise the debt ratio over the medium term. The measures adopted for 2025–26 mainly adjust existing programmes, but deeper reforms will be required in the coming years.

Ageing creates significant spending pressures (Figure 1). Austria’s population is ageing rapidly, with fewer prime-age workers and more retirees. This trend risks slowing growth and putting additional strain on pensions, health care and long-term care systems. With rising defence needs and the impact of climate change on the public finances, a large fiscal adjustment will be required in the coming years.

Encouraging higher labour market participation among women and older workers will be essential. Expanding affordable childcare, promoting shared parental leave and reducing tax disincentives for second earners would help boost female employment. Tightening access to early retirement and better targeting subsidised part-time retirement schemes would also help extend working lives.

Pension spending is already among the highest in the OECD and is projected to rise further. Linking the retirement age to life expectancy and adjusting pension indexation rules would strengthen the system’s long-term sustainability while protecting lower pensions.

Health and long-term care systems will face rising demand as the population ages. Strengthening primary care, improving coordination across the health system and promoting the use of generic medicines could enhance efficiency. In long-term care, improving working conditions, broadening the workforce and better targeting support will be key to maintaining service quality and financial sustainability.

Public spending in Austria is high compared with many European peers, reflecting its social protection system (Figure 2). Improving the efficiency of public expenditure—particularly in social protection and areas such as public employment, subsidies and procurement—could help create fiscal space to address the spending pressures, alongside efforts to better manage the cost of ageing.

Better targeting of social benefits could improve efficiency and fairness. Social assistance already plays an important redistributive role, but family benefits are largely universal. Gradually phasing out transfers for higher-income households would make the system more progressive.

At the same time, the retirement of large cohorts of civil servants provides an opportunity to reorganise and digitalise public administration. More systematic spending reviews and reforms to the fiscal equalisation framework would further strengthen incentives for efficiency.

Tax reform would support fiscal sustainability and growth. Austria’s tax system relies heavily on labour income while making relatively limited use of property and inheritance taxation. Shifting part of the tax burden away from labour—especially for low-income workers—towards more growth-friendly tax bases as VAT and property could improve both equity and efficiency.

Together, these reforms would help Austria restore fiscal space, strengthen economic resilience and ensure that high living standards can be maintained as the country navigates the challenges of ageing, energy transition and slower potential growth.

Visit the OECD’s Austria Economic Snapshot page for further information.

References:

OECD (2026), OECD Economic Surveys: Austria 2026, OECD Publishing, Paris, https://doi.org/10.1787/7cea027b-en.