Remarks by Angel Gurría, OECD Secretary-General, delivered at the press conference

11 July 2011
Vienna, Austria

(As prepared for delivery)
 
Dear Minister of Finance Maria Fekter and Minister of Health Stöger,
State Secretary Schieder,
Ladies and Gentlemen,

It was your legendary Federal Chancellor Bruno Kreisky who has said: “Ihr glaubt’s gar nicht wieviel Lob ich ertragen kann.” [You don’t know how much praise I can stand]. I am not sure how much praise Austria can stand, but let me tell you that it deserves a lot of it.

So, it is a great pleasure to be back in Vienna and to present the Economic Survey of Austria 2011. To come straight to the point: with some further policy reforms to strengthen domestic sources of growth, Austria will be well on track to secure its place in the Champions League. Let me outline the main findings of the Survey.

The Austrian economy has weathered the crisis well on the back of an export led recovery which spilled over to investment. GDP has surpassed its pre-crisis peak in the first quarter of 2011. In GDP per capita terms Austria already ranks among the highest in the euro area (4th) and overall OECD (7th). The economy is projected to expand by close to 3% this year, one of the highest rates in the euro area.

While we speak of jobless recoveries in many OECD countries, the labour market in Austria has recovered quickly since the end of 2009. The unemployment rate is now the second lowest in the euro area (at 4.4% in Q1). Maybe even more importantly, the share of long-term unemployed and the labour force participation rate remained broadly constant through the downturn, suggesting that discouraged worker effects are less of a concern in Austria than in several other OECD countries.

What are the reasons for this impressive economic performance while maintaining a high degree of social cohesion? We believe that this strength rests on three pillars:

• First, a successful export oriented economy, with entrepreneurs who understood how to reap the benefits from past decades of European integration for workers, asset holders and the treasury alike. 
  
  
• Second, a highly skilled and motivated labour force, which manifests itself in low overall unemployment and low youth unemployment in particular. 
  
  
• And third, a consensus based society in which social partners go beyond their traditional role of negotiating wages and work conditions and take responsibility for preparing reform proposals.

1. Growth and employment-friendly fiscal consolidation

Now, let me go to the challenges.
Fiscal performance has taken a hit – although less so than in many other countries. Nevertheless more has to be done in order to prepare for future spending pressures, which are related to an ageing society. In good times, Austrian governments have a tendency to use unexpected cyclical revenue increases to initiate permanent spending programmes.

The government has recently improved the medium term fiscal framework for the federal budget and concluded a new internal stability pact with the Länder. We recommend going a step further and introduce explicit debt targets and implement the new fiscal framework with medium-term spending ceilings also for the Länder.

Good times should be used to step up growth-friendly fiscal consolidation. Being more ambitious, now that economic activity has recovered its pre-crisis level – would make a big difference in the levels of debt going forward. Tax burden should be switched away from labour and entrepreneurship towards less distortive taxes such as on property. This would create room for future spending pressures, strengthen investor confidence, encourage life-long learning by a lower expected tax burden on labour and reduce the risk premium for private borrowers.

2. Public spending efficiency for sound fiscal policy

Sustainable fiscal policy could be supported by increased public spending efficiency:

• Despite a commendable pension reform, average retirement age is now among the lowest in the OECD. Employers and workers have to prepare for later retirement. As long as early retirement programmes are open, the necessary adjustments will not take place and this has a high cost.
  
  
• Although Austria has outsourced many public sector activities. It is not always clear whether this is the most cost effective way to deliver public services.
  
  
• Austria could better target transfers to the most vulnerable in light of the future spending pressures in ageing related areas, but also for a better education system. Especially if this money has to be borrowed and will add to the debt burden of future generations.
  
  
• Improving tax collection and reducing compliance cost can generate considerable savings.

Furthermore we recommend to reduce the taxation of labour, especially for low-wage work – which has a high supply elasticity. In compensation the real estate tax base – which is multiples below market values – should be adjusted appropriately. Taxation of property in Austria is much lower than elsewhere in the OECD and member country experience shows that a more balanced tax structure is less burdensome for economic activity.

3. Health care – improving efficiency to secure quality and inclusiveness

An area where more spending efficiency is particularly important is health care, the topic of the in-depth chapter of the Survey. The OECD and the Austrian government agree on the key challenge faced by the Austrian health policy: the system has delivered very good and equitable outcomes to date, is highly appreciated by the population, but has very high fiscal costs and faces increasing additional spending pressure in the medium-to-long term. Without important structural reforms, it may be difficult to maintain the quality and social equity in the system, as the population ages and health technologies become more costly.

Reforms are indispensable to maintain the generosity and wide accessibility of the system:
The present structure of the health sector is complex and supply driven. This weakens and distorts the incentives of various stakeholders. Public funding is excessively fragmented, both across government layers and the multitude of health insurance funds. This deprives the whole structure from close monitoring, and overall policy direction. Austria’s health prices remain high, and services do not seem to be offered in the most effective mix: curative in-patient services in hospitals dominate at the expense of patient-centred, prevention-intensive outpatient care.

Among several important reform directions that the government presently pursues, three are particularly important to us and we fully endorse them:

1.  More strategic control is needed over the utilisation of public health funds, according to performance objectives. As this cannot be achieved via administrative centralisation, or in a unified social insurance system, public financing can be consolidated in “fund pools”, to help pursue common performance and innovation objectives between various stakeholders.

2. More emphasis is needed on healthy lifestyles. This appears particularly important in Austria as average lifestyles are not sufficiently healthy. There are also significant gaps between social groups, for example concerning smoking, alcohol consumption and obesity. These may undermine health outcomes and amplify future health costs. Setting national “health goals” (such as target benchmarks for diet quality, smoking, alcohol consumption etc.) could help. Monitoring them closely at national and regional level and for specific risk groups could usefully inform policy.

3. Finally, better co-ordination between health and economic policy has become more compellingly than in the past. This may be facilitated by giving more prominence to medium-term fiscal scenarios and outlooks of the health sector. Health and economic policymakers would then be better able to communicate objectives, for example in the form of a target path for public health spending, and avoid abrupt policy pressures and ad-hoc adjustments. 

For ensuring its place in the Champions League, Austria should also further focus on productivity, labour markets and education – these are other policy areas where appropriate reforms will lead to success.
How could Austria achieve that? First, there is room to strengthen service sector productivity by fostering competition in network sectors and liberal professions. Second, the successful labour market performance should be extended outside the core of highly skilled prime age male workers. And third, education reforms should be continued to complement and fully reap the benefits of reforms already undertaken to strengthen the innovative capacity.

Ladies and gentleman,
A founding member of the OECD 50 years ago, Austria has a continuing close relationship with the Organisation. We look forward to working with Austria to produce “better policies for better lives” in the next 50 years. Thank you.