Austria has established a reputation as a well performing economy. Among the European countries, Austria belongs to the group of five with the highest GDP per capita since the end of the 1980s. Unemployment in Austria has been consistently at the lower end within the EU and the OECD. Yet, in recent years the Austrian growth performance has weakened relative to the other high-income countries and unemployment, while still being relatively low, has increased to levels hardly known in the past. The weakening of Austria’s growth performance is largely reflected in weaker employment generation whose adverse effects were not offset by higher productivity growth...

This chapter starts with an overview of the current macroeconomic situation and the Secretariat’s assessment of the short-term outlook. It then highlights a number of areas where structural reform is needed so as to cope with the longer-term challenges the Austrian economy is facing. For high economic performance to continue it is necessary to reduce barriers to labour force participation. This is a major issue addressed in this survey, involving removing incentives for early retirement and revisiting the incentives implied by family support policies. In the same vein, in some fields regulation can be improved so as to reduce the cost of labour and support higher labour demand. Austria’s growth performance would be supported by stepping up productivity. Various factors come into play that are important in this respect, such as raising the efficiency of the education system and fostering life-long learning. Further strengthening of product market competition will be helpful, and possibly necessary, for maintaining high productivity growth. A major part of this Survey is devoted to this issue. Moreover, improving economic performance and coping with the fiscal pressure arising from rapid population ageing requires reinforcing fiscal consolidation, linked to public sector reform. There appears to be considerable scope to further enhance the efficiency of the public sector, various aspects of which are considered in the fiscal part of the Survey. Finally, the Survey is dealing with further selected sustainability issues, namely climate change waste management and development aid to other countries...

Since the beginning of this decade fiscal policies in Austria were largely shaped by the goal of balancing the general government budget. This target was reached in 2001, mainly via revenue increases but also by some spending restraint. Since then, low GDP growth as well as new spending demands, are leading to a recurrence of significant general government deficits. For the next years to come public sector reform, including reform of the social security system, continues to rank high on the government’s policy agenda. However, the new administration, which came into office in March 2003 has widened priorities to include substantial tax reductions that are planned to be phased in from 2004 onwards. This would entail higher deficits for some years, before fiscal consolidation would be resumed. Hence, stepping up government spending reform is called for to establish a credible path of continued fiscal consolidation. This chapter highlights recent fiscal developments and considers major aspects of public sector reform...

Reducing barriers to labour force participation is crucial for raising Austria’s growth performance and increasing the capacity of the economy to respond to future challenges, notably in terms of a rapidly ageing society. This chapter considers major issues in this respect, such as policies associated with the recent pension reform and matters relating to female labour force participation. Equally important, a number of specific issues need to be addressed to ensure that labour demand meets supply. In particular, wages need to be sufficiently flexible to adjust to productivity, and non-wage labour cost needs to be reduced. Finally, education and training is increasingly important in a knowledge based society to safeguard high employment levels and boost productivity. There appears to be considerable scope to improve the efficiency of Austria’s education system, major aspects of which are considered in the last part of this chapter. A summary of present and earlier recommendations is contained in Box 4 at the end of the chapter...

The aim of this chapter is to assess what role policies that bear on competition have played for economic performance in the past and what potential they may hold for the future.60 While recognising the progress made on many counts, the analysis seeks primarily to identify areas where policies continue to impair performance, thereby preventing Austria from exploiting its full capacity. The remainder of this section gives a broad review over useful indicators on the stance of competition. Next, the chapter provides a discussion of the effects of international trade and market openness on product market competition over the past decade. Then, the chapter turns to discussing current policies and recent reforms in two areas. The first policy section provides an overview of competition law and enforcement one year after the coming into force of a new legal framework. Next, a review and an assessment are made of regulatory policies towards network industries, the distribution sector and professional services. The concluding section draws these partial analyses together by providing a set of policy recommendations and an assessment of the magnitude of the macroeconomic gains that Austria might realistically envisage by undertaking further product market reforms. Public sector issues - procurement and privatisation – are considered in Chapter II above...

There is growing concern that long-run sustainable development may be compromised unless countries take measures to achieve balance between economic, environmental and social outcomes. This section looks at three issues of sustainable development that are of particular importance for Austria. In each case, indicators are presented to measure performance, and an assessment is made of government policies that affect the issue. The section also considers whether institutional arrangements are in place to integrate policymaking across the different areas of sustainable development (see Box 10). The section first looks at the policies that have been put in place to control emissions of greenhouse gases. It then examines waste management policy. Finally, the section considers trade and aid policies in terms of their ability to help developing countries to achieve sustainable development...