Friday, December 5
Prof. Dr. Bernhard Felderer, President of the Austrian Fiscal Advisory Council
On December 5, 2014, Bernhard Felderer, President of the Austrian Fiscal Advisory Council, gave a wide-ranging lecture on Austria’s economic outlook and Austrian fiscal institutions. The public event at the Joint Vienna Institute (JVI) was part of the Austrian Federal Ministry of Finance (BMF) / JVI course on Administrative Reform in a Global Environment (ARG).
The Austrian Fiscal Advisory Council is an independent institution established in 2013 as successor organization of the Government Debt Committee to promote sustainable public finances and intensify fiscal discipline throughout Austria. The Council’s mandate is to monitor government compliance with the numerical fiscal rules in line with the new governance framework of the European Union, issue recommendations on fiscal policy, carry out fiscal policy studies, and shape public opinion on public finance matters.
Prof. Felderer began by discussing some of the factors that have held back a stronger recovery in the euro area after the economic and financial crisis: continuing high private and public debt levels, high unemployment, and delays in structural and institutional reforms. The international environment, especially geopolitical tensions (e.g., in Ukraine), energy prices, and exchange rates, have created additional uncertainties in relation to economic activity in Austria.
Concerning the debate about infrastructure investment in the euro area, Prof. Felderer urged that despite its fiscal constraints, Austria should provide funding for investment- and growth-enhancing measures at all levels of government—central, regional, and local. However, he noted that public investment, which currently accounts for 10–15 percent of total investment, could not be scaled up enough to compensate for low private investment and innovation. He called for measures to boost private investment to help get the growth engine restarted, including by providing incentives for investing in profitable projects in R&D and energy efficiency. He emphasized that in the long run, if potential output in Europe is to be boosted, structural reforms are unavoidable.
By fostering transparency and promoting a culture of stability, independent public institutions can facilitate the application of fiscal policy rules, improve incentives, and close technical loopholes through independent expertise. Since such agencies are compulsory in the new European fiscal governance framework, the main tasks of the Austrian Fiscal Advisory Council reflect both national coordination needs (analyzing the sustainability and the quality of fiscal policies) and the requirements imposed by the European fiscal framework (providing recommendations on the medium-term budget objectives in the Stability and Growth Pact (SGP)).
Prof. Felderer concluded with a summary assessment of Austria’s fiscal policy. He explained that since 2011, fiscal consolidation had consisted mainly of discretionary measures. Moreover, the costs of rescuing banks have been high, with a budgetary impact in 2014 of up to €4.1 billion. Moreover, he estimates that it could take about 12 years to reach the medium-term SGP debt target of 60 percent of GDP, assuming a balanced structural budget and nominal annual GDP growth of 3.4 percent.
The presentation was followed by a lively Q&A session that demonstrated the huge interest among JVI countries in learning more about independent agencies that help promote sound fiscal policies.
Irina Bunda, Economist, JVI