Austria is a federal state in which government responsibilities are shared at three territorial levels: federal, regional (there are nine Bundesländer) and local (2,357 municipalities).
According to Austria’s Fiscal Constitutional Law, the spending competences of the federal government concern tertiary education, parts of social policy (family allowances and private sector pensions), unemployment benefits, internal security, justice, foreign policy, defence and national infrastructure. The residual competences fall under the remit of the states. These include social assistance, health care (hospitals), parts of primary and secondary education, environment and regional infrastructure. Municipalities are responsible for local planning, the functioning of local infrastructure, as well as providing social services.  

  

TThe main act that governs fiscal decentralisation is the Fiscal Constitutional Law (1948) which defines the spending competences of the federal government, with the competences not listed falling under the remit of the regions. Furthermore, relations between the three levels of government are ruled by the periodically negotiated Fiscal Equalisation Law (FAG) and the Austrian Stability Pact (ASP). The medium-term budgetary plans of the three layers of government are coordinated under the FAG. The law lists the types of taxes that are to be shared between the three levels, and the proportions they are entitled to receive. The FAG also specifies the horizontal distribution of revenues at the regional and local level. The ASP sets deficit/surplus targets for the federal, regional and local governments.​ 

Even though Austria is considered a federal state, the level of autonomy of the sub-central governments is relatively low. The relations between the three layers of government are complex and the division of competences is less extensive in comparison with other federal states. 

In 2018, the share of expenditure of the Bundesländer was 19%, and that of the municipalities 17​%, relative to total government expenditure. These ratios have remained largely unchanged since 2000. 

 

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology. 

 

The rules governing transfers from the federal level to the local level are defined in the FAG. The aim of the system of transfers is to ensure that each level of government has sufficient resources to carry out the tasks assigned to it by the legislation. However, the system of transfers that exists is fairly complicated and almost completely opaque. During 2008, the FAG changed some of the transfers from the federal government to the regional and local levels into revenue shares. This introduced some transparency, but further steps toward simplification are needed. 

In Austria, the degree of revenue autonomy at the subnational level (own revenues relative to total resources available) was around 20% in 2018 which was below the EU average (around 64%).

 

 

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.

 

Compared to the regional level (Bundeslander), the local governments have a slightly higher degree of revenue autonomy at around 35%,  but still below the EU average of 53%. Consistently, the transfer dependency ratio is  higher than the EU average, with the state level having a transfer dependency of 82% compared to the EU average of 36% in 2018, and the local level having a transfer dependency of 65% compared to 48% in 2018. Similar to the situation with regard to revenue autonomy, fiscal autonomy is low, as discretion in setting taxes is low. This implies that local authorities do not have a significant role in collecting tax revenues and similarly have limited powers in taking decisions about taxes.​

 

 

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology. 

 

The composite ratio, which captures aspects of fiscal decentralisation of both revenue and expenditure, suggests that at the level of the Bundesländer, fiscal decentralisation in Austria is just below the EU average (for states), while at the municipal level it is below the average by a slightly wider margin.
The tax autonomy of the Bundesländer is similarly divided between rates set under full autonomy (33%) and those set by central government (46%). For municipalities, the discretion rate on local taxes is very low and is mainly restricted to real estate taxes. The federal government receives about 64% of the revenue from the shared taxes, the Bundesländer 19% and municipalities about 17%. Much of the revenue flowing to the sub-national governments is earmarked, some of which requires co-financing by the sub-national authorities.  

 

Source: authors’ elaboration on OECD data. For further details, see methodology.

 

According to Austria’s Federal Budgetary Law, the federal finance minister is allowed to enter into a credit transaction on behalf of the regions through the Austrian Federal Financing Agency. The amount of debt issued by the federal government for the financing of the states cannot be more than 20% of total general government expenditure in a given year. Credit operations of the municipalities are regulated by the states.

The ASP prescribes deficit/surplus targets for the federal, regional and local governments. The goal is to involve all levels of government in the consolidation of public finances. 

According to Eurostat data for 2018, the federated entities had a debt level of 5.5 % of GDP, down from 6.1% in 2011, while for municipalities it was 4.2%. For both levels of government there are clear signs of an effort to rein in debt, with net lending at around 0% for both in the past two years.​

 

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology. 

 

In 2017 the Bundesländer governments had as their main expenditure items health (30%), social protection (22%) and education (16%), closely followed by general public services (13%) and economic affairs (14%). It is interesting to note that the Bundesländer handle a large share of the national expenditure on housing and community amenities, although this represents a relatively low proportion of their budgets, reflecting low national expenditure in this area. The shares of total government expenditure handled by Bundesländer in the areas of health and education are 34% and 31% respectively.

 

 

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.

 

In 2017, provincial and municipal governments were mainly responsible for social protection (22% of total budget of the two entities), health (22%), education (17%), general public services (16%) and economic affairs (11%). These figures are very much in line with the EU averages. Municipalities have a slightly lower share of government expenditure than the EU average, but this is partly due to the share allocated to the Bundesländer.​​  

 

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.