Campus WU

How much has COVID-19 cost the Austrian government so far?

02/08/2021

Klaus Prettner, Professor at the Institute for Macroeconomics

The financial impact of COVID-19 on Austria’s public coffers

As of May 25, 2021, the expenses for COVID-19 relief measures amounted to €37 billion in Austria, based on figures provided by the Ministry of Finance (this includes short-time working benefits, tax deferrals, compensation payments for lost profits, etc.). In addition to these relief measures, however, we also need to take the losses in tax revenues into account. We can make an approximation based on Statistics Austria figures for the 2020 budget deficit (and the difference to the 2019 budget deficit) and the Austrian Institute for Economic Research’s (WIFO) January 2021 forecast for the 2021 and 2022 budget deficits. This approximation results in total fiscal costs related to COVID-19 of roughly €70 billion during the three-year period from 2020 to 2022.

The economic costs of COVID-19

It is important to note, however, that the fiscal costs are not equivalent to the total economic costs. The economic costs of the pandemic include COVID-19-related production standstills and lost profits of businesses and private households. Government relief payments, in contrast, constitute a redistribution of income from taxpayers to companies and workers who receive financial support. This money reenters the circular flow of economic activities, which means that it is not “lost” from an economic point of view. To estimate the total economic costs of the pandemic rather than only the fiscal costs, we can make another approximation: We can compare Austria’s current GDP (the total value of all goods and services produced in the country, or, in other words, the total income generated within the economy) to GDP forecasts that were made before the pandemic hit. For Austria, the difference between the pandemic scenario and the forecast non-pandemic scenario amounts to around €33 billion for the first quarter of 2021.

Outlook, uncertainties, and room for action

This amount only represents a snapshot of the situation in the first quarter, however. Currently, we are observing a strong economic upturn due to the end of the lockdown and consumption picking up again as consumers are rushing to make previously delayed purchases. This reduces the loss in production and income, resulting in lower economic costs. However, we must also take into account losses that will only start to materialize in the coming years, for example lower future income levels for today’s students and schoolchildren who lost valuable classroom time when the schools had to close. Mitigating these effects is one of the responsibilities of our policymakers. But they also need to make well-founded plans for the time that lies ahead to curb the spread of dangerous virus variants and avoid any further lockdowns.

Klaus Prettner, Professor at the Institute for Macroeconomics

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