Budget deficit rises on impact of Ukraine war

20 Apr 2022

Austria has increased its 2022 budget deficit and debt forecast according to the finance ministry, due to the impact of the war in Ukraine on economic growth.

After increased spending on measures to soften the blow of the Covid crisis, a more robust recovery was predicted this year. The aim was to return the budget deficit back to within the EU’s limit of 3% of GDP for the first time since 2019.

Last month, economic researcher WIFO slashed its GDP growth outlook for 2022 to 3.9%, nearly a percentage point less than the 4.8% it forecast when the budget was announced in October. WIFO delivers the forecasts on which the government bases its budget.

“The war’s economic effects and the resulting economic relief and support measures as well as strategic investments make it necessary to amend the Federal Finance Act 2022,” according to a Finance Ministry statement, in reference to the national budget law.

As it stands, the ministry now forecasts a budget deficit of around 3% of GDP, a rise from the 2.3% unveiled last October, Reuters reports. In addition, the debt-to-GDP ratio is forecast at around 80% of GDP, as opposed to the original prediction of 79.1%, the ministry added.

Moreover, Austria acquires around 80% of its natural gas from Russia, which it says is a level that cannot immediately be stopped.

The finance ministry went on to add that Austria was budgeting €1.6 billion in 2022 for a “strategic gas reserve.” In addition, providing for the thousands of Ukrainian refugees who are now in Austria will cost hundreds of millions of Euros this year, the ministry said.

Furthermore, the ministry noted rising costs stemming from new assistance measures aiming to lower mounting energy bills, as well as a reduced tax take as a result of items such as lower electricity tax.