2009 Index of Economic Freedom

Quick Facts

Population:

• 8.3 million

GDP (PPP):

• $298.5 billion
• 3.3% growth
• 1.9% 5-year compound annual growth
• $36049 per capita

Unemployment:

• 4.4%

Inflation (CPI):

• 2.2%

FDI Inflow:

• $248.4 million

Austria's economic freedom score is 71.2, making its economy the 23rd freest in the 2009 Index. Its score remains essentially unchanged from last year. Austria is ranked 11th out of 43 countries in the Europe region, and its overall score is well above the regional average.

Austria has a strong tradition of respect for property rights and clean government. As a member of the European Union, its tariff is standardized at a low rate, and monetary stability is well established. The government has moved to streamline complex and time-consuming regulations. Foreign investment requirements are not particularly stringent. Austria's well-developed financial market facilitates vibrant entrepreneurial activity.

Austria's corporate tax rate is competitive, but personal income is taxed heavily. Austria remains weakest in government size, with government spending equal to almost 50 percent of GDP. Further budgetary tightening should complement tax cuts planned for 2010. Several budget-trimming health-sector reforms are to be phased in gradually until 2012. On January 1, 2008, after overcoming some political hurdles, the federal, state, and local governments implemented the first phase of a fiscal coordination scheme with measures that reallocate expenditure responsibilities and stress fiscal accountability at all levels.

Background Back to the top

Austria joined the European Union in 1995, cementing its ties to the West. Over the past decade, the government has relinquished control of formerly nationalized oil, gas, steel, and engineering companies and has deregulated telecommunications and electricity. From 2000–2007, People’s Party Chancellor Wolfgang Schüssel accelerated market reform and significantly limited government intervention in the economy. Austria’s primary trading partners are other EU member states, which account for more than 80 percent of imports and exports. The coalition government headed by Schüssel’s Social Democratic successor, Alfred Gusenbauer, dissolved after just 18 months. In the September 2008 parliamentary elections, far-right parties made significant gains, but Social Democrat Werner Faymann was invited to form another coalition government.

Business Freedom 78.6 Back to the top

The overall freedom to start, operate, and close a business is relatively well protected under Austria's regulatory environment. Starting a business takes an average of 28 days, compared to the world average of 38 days. Obtaining a business license involves less than the global average of 18 procedures, and closing a business is easy.

Trade Freedom 85.8 Back to the top

Austria's trade policy is the same as that of other members of the European Union. The common EU weighted average tariff rate was 2.1 percent in 2005. Non-tariff barriers reflected in EU and Austrian policy include agricultural and manufacturing subsidies, import restrictions for some goods and services, market access restrictions in some services sectors, non-transparent and restrictive regulations and standards, and inconsistent customs administration across EU members. Ten points were deducted from Austria's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 49.9 Back to the top

Austria has a very high income tax rate and a moderate corporate tax rate. The top income tax rate is 50 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a tax on insurance contracts. In the most recent year, overall tax revenue as a percentage of GDP remained very high at 43.4 percent.

Government Size 27.1 Back to the top

Total government expenditures, including consumption and transfer payments, are very high. In 2004, government spending equaled 49.3 percent of GDP. With a limited deficit, Austria's government finances are in better shape than those of some other euro zone economies.

Monetary Freedom80.9 Back to the top

Austria is a member of the euro zone. From 2005 to 2007, its weighted average annual rate of inflation was 2.1 percent. As a participant in the EU's Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. It also subsidizes rail transportation and operates some state-owned firms, utilities, and services. Ten points were deducted from Austria's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom70.0 Back to the top

There is no discrimination against foreign investors, but they are required to follow a number of regulations. For example, at least one manager must meet residency and other legal qualifications. Non-residents must appoint a representative in Austria. Foreign investment is forbidden in arms, explosives, and industries in which the state has a monopoly, the auditing and legal professions, transportation, and electric power generation. Investment is subject to strict environmental restrictions. There are no controls or requirements on current transfers, access to foreign exchange, or repatriation of profits. Real estate transactions are subject to approval by local authorities. Austria's legal, regulatory, and accounting systems are transparent, but bureaucracy can be cumbersome. Expropriation of private property is rare and may proceed only on the basis of special legal authorization. The expropriation process is fully transparent, is non-discriminatory with respect to foreign firms, and results in just compensation.

Financial Freedom70.0 Back to the top

Austria's financial system is well developed, and banks provide a wide range of credit and financial instruments. Domestic as well as foreign investors enjoy access to Austrian credit and capital markets without government restriction. Markets set interest rates, and foreign banks operate freely. Financial regulations are transparent and consistent with international norms. With its foreign exchange regime fully liberalized, Austria does not have any controls or limitations on cross-border transactions. The stock exchange, privatized in 1999 and modest in size, has performed consistently better than those of other industrialized countries in recent years. Additional capital is readily available from elsewhere in Europe.

Property Rights90.0 Back to the top

Private property is very secure. Contractual agreements are enforced, and the protection of private property and intellectual property is well established and effective. There is a long-standing tradition of respect for the rule of law, and the judiciary is independent.

Freedom From Corruption81.0 Back to the top

Corruption is perceived as minimal. Austria ranks 15th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Any person who bribes either an Austrian or foreign government official is subject to criminal penalties.

Labor Freedom78.7 Back to the top

Austria's flexible labor regulations enhance employment and productivity growth. However, the non-salary cost of employing a worker is high because the cost of fringe benefits per employee still remains among the highest in the EU.