Redistributiion by the State in Austria

Although the size of the public sector is large in Austria, its redistributive impact from high to low income classes is limited: on the revenue side, indirect taxation is high and, on the expenditure side, the principle of horizontal equity is prevalent. In Austria, income and property taxation is low and only moderately progressive due to a number of tax concessions which lower the tax rate for high incomes substantially. Indirect taxes and social security contributions which have a clearly regressive effect on the distribution make up more than 70 per cent of all public revenues. Thus, the degree of progression of public revenues is only moderate. Public expenditures amount to more than 50 per cent of GDP in Austria. Eligibility and hence the distribution of public expenditures are dominated by the principle of horizontal equity and means testing is of hardly any importance. Consequently, in actual terms most public benefits are received by higher income classes with larger household size. Only unemployment benefits, unemployment assistance and special assistance for single mothers are, in actual terms, distributed to low-income groups to a significant extent. In spite of this, low-income classes receive proportionately more public benefits than high-income groups. Thus, the expenditure side is clearly progressive: the first decile has 50 per cent more income after redistribution than before, the fifth decile loses 10 per cent and the top decile about 25 per cent.