The paper "Fiscal Policy of Austria" is an extraordinary example of research paper on finance and accounting.
Fiscal policies of member countries of the European Union are managed largely by the union itself that was formed soon after the slowdown of the early 1990s to solve the problems of its member countries at the time when they were at the brink of recovery. The fiscal policies of individual nations remained largely in their own hands, but some guidelines were constructed to prevent them from deviation and face any further recession or slowdown. These guidelines were in the form of treaties being agreed upon by all the 27 member countries of the European Union.
(1) The Maastricht Treaty:
Required its member countries to maintain very low budget deficits – 3% of their GDP, so that the risk premium included in interest payments would be lower and so would the gross amount of interest payments. This step was supposed to help them overcome the accumulated deficits and prevent further slowdown.
(2) The Stability and Growth Pact:
A follow-up of the Maastricht Treaty, needed a country to control its fiscal deficits at the wake of an economic downfall,
The European Union also saw to it that the potential member countries met certain criteria for their entry into the union, regarding1. Their individual public finances and2. Fiscal flexibility to maintain stability in the economy, besides maintaining a low rate of the deficit.
Budget: European Union
The European Union’s budget is decided by a group of three – the Council of Ministers, the European Commission, and the European Parliament. The various sources of revenue collection to finance their budget are:
(i) Import duties: Import duties are collected by the state and passed onto the EU. The EU allows the state to keep 25% of the duties collected to themselves for administrative expenses and the rest is kept with the EU.
(ii) VAT based taxes: The European Union extracts a proportion of the Value Added Tax imposed on the consumers in each of the member nations.
(iii) GNI based taxes: This is the most important and the largest contributor to the EU budget. It is collected at the end of the financial year according to the GNI earned by different members. Currently, this type of tax amounts to 1.24% of the GNI of all EU member nations taken together.
(iv) Other Sources: Interest on deposits or late payments, payments from non-EU organizations and other surpluses from the previous budget. Presently, it accounts for just 1% of the total EU budget.
Expenditures of the European Union
(i) Various education and research expenses for the upliftment of the disadvantaged regions.
(ii) Various activities related directly or indirectly to rural development.
(iii) Expenses for strengthening cooperation among the member nations to fight against crimes, consumer protection and promotion of cultures and traditions.
(iv) Administrative costs like paying salaries and pensions to its employees.
(v) Special support to nations before joining the EU, funds to maintain friendly ties with neighboring countries, financing Foreign and Security Policy, etc.
The inclusion in the European Union has restricted the adoption of individual fiscal policies the member nations to a large extent, but the instruments that are still under their control are of crucial importance. These policies are almost similar to those of the US in almost every respect.
Fiscal Policy of Austria: A Three-Step Strategy
(1) Stability Program: A three-pillar strategy –
· Balanced Budget over a business cycle
· Investment in R & D, infrastructure, education and tertiary education aimed at reducing unemployment and aggravating the growth process.
· Structural reforms in the field of public administration.
(2) Structural Policy: Aimed at making the economy lucrative for businesses:
· Product Market Reforms: Include the reform of the Competition Law, Public Procurement, Liberalization of electricity, gas and telecommunications industry, etc.
· Development of the knowledge-based economy
· Capital Market Reforms.
· Labor Market Reforms
· Active integration of long term unemployed and older workers
(3) Sustainability of Public Finances:
·A balanced budget and a remarkable decline in the debt – to – GDP ratio by the end of 2009.
· Increased employment rates and a rise in productivity.
· A financial safeguarding of long-term caring schemes, like pensions, health programs, etc. (Federal Ministry of Finance)
The fiscal policies of various nations are bound to be similar in the present situation when the subprime crisis is gnawing out the core of most economies worldwide. However, Austria, amongst a few others has managed to keep the impact low, unlike the USA that was fatally wounded by this. But since it is still a developing nation, so its policies are bound to be stringent.