The climate-fiscal timebomb: Austria

08 March 2026

Fiscal outlook

Austria recorded a 4.7% deficit in 2024 and a debt-to-GDP ratio of 79.9%. On 8 July 2025, the Council of the European Union opened an excessive deficit procedure and required Vienna to present measures by 15 October 2025. The finance ministry’s Fiscal-Structural Plan and budget documents foresee budget cuts of €6.4bn in 2025 and €8.7bn in 2026.

Deficit measures the level of borrowing in a given year. Debt-to-GDP compares the total public debt to the size of the economy. Both are currently used to determine how much borrowing a member state is allowed to undertake. However, neither measure in itself determines a government’s capacity to sustain higher levels of public investment. Fiscal sustainability depends on growth, the multiplier effects of investment, interest rates, inflation, the structure of the economy and external risks such as climate change. NEF advocates moving away from strict numerical debt targets.

Rising climate costs

Climate losses are mounting. Red-alert heat and drought gripped the country in the summer of 2025, with wildfire risk reported in Upper Austria, and early-August floods in Carinthia. Austria’s Alpine glaciers continue record retreat, and experts warn the country could be largely ice-free within ~45 years without rapid warming reductions. Experts further warn that national food security is under threat due to extreme weather events, recording total damages of €260m in 2024 in the agricultural sector.

What NEF’s modelling shows

Organisation for Economic Co-operation and Development (OECD) projections show Austria’s GDP declining by 9% by 2050 and 13% by 2070 under current policies. Our modelling shows the following:

Under current policies (BAU – business as usual), Austria’s debt is projected to be 60 pps higher than the climate-agnostic baseline in 2050 and 200 pps higher in 2070.

With early EU mitigation and sufficient adaptation spending, debt is 28 pps higher in 2050 and 52pps higher in 2070.

Delayed EU investments and insufficient adaptation result in higher debt levels of 42 pps in 2050 and 84 pps in 2070.

EU early action combined with global cooperation results in 5 pps lower debt levels than the climate-agnostic baseline in 2050 and 27 pps lower levels in 2070.

Introducing progressive taxation, such as a wealth tax, combined with early EU action, would reduce debt by 9 pps in 2050 and 26 pps in 2070 compared to the climate-agnostic baseline.