Government in Austria is excessive, with high public expenditures, reaching 51.7% of GDP in 2015. Such high level of consumption is mostly due to high social transfers due to redistributive schemes, especially in the field of retirement plans and healthcare. These costs are projected to continue to grow substantially due to demographic changes. Pension system is already unsustainable, due to high dependency ratio, coupled with high substitution levels and an activity level in the labour market that is much lower than in comparative countries. Austria has been recording sluggish economic growth recently, but it is expected to pick up due to acceleration in partner countries and increase in exports, as well as due to the implemented tax reform. Although measures of fiscal austerity
delivered results in containing the deficit, public debt is at an elevated level of 86% of GDP in 2015, asking for further prolonged efforts to comply with the Maastricht criteria. High taxation level is needed to sustain excessive government consumption in Austria. Austria has introduced significant changes in its taxation system, effective since January 2016, moving away from taxing labour and somewhat lowering progression of the personal income tax. The lowest income (above 11 000 euro per annum) is now taxed by 25% instead of 36,5%; higher tax rate of 50% is now applied on a much higher threshold than before. And, a new rate of 55% was introduced for the highest earners. At the same time, a new VAT rate of 13% was introduced for certain goods and services, alongside the already existing 10% and 20% rates. Corporate income tax remains 25%. Social security contributions still remain high, divided between the employer (21.7%) and the employee (18.2%), which, coupled with the income tax, keeps the tax wedge high. State-owned enterprises (SOE) are mostly concentrated in the utility and infrastructure sector, but the government holding OBIB holds minority stocks in many other companies where government presence is unnecessary. SOEs abide by the same rules in the market as private companies, not distorting competition except in areas considered as government monopolies.