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...