VZCZCXRO2059
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHVI #1961 2061351
ZNR UUUUU ZZH
R 251351Z JUL 07
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 8121
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS VIENNA 001961 
 
SIPDIS 
 
SIPDIS, SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ELAB ECON EFIN AU
SUBJECT: AUSTRIA STEPS BACK ON PENSION REFORM 
 
Ref: Vienna 1715 
 
Summary 
------- 
¶1.  (U) After dealing with the 2007 and 2008 budgets (reftel), the 
GoA has passed a pension reform bill, which reverses some of the 
reforms implemented by the previous center-right government. 
Following up on its election promise to present a more social face 
to the GoA's economic program, the Social Democratic (SPO)-led 
government has simplified early retirement procedures.  Both the IMF 
and OECD have urged Austria to do more to close loopholes in the 
pension system and to contain spending on pensions in the face of an 
aging population.  End Summary. 
 
 
GoA Reverses Features of 2003-04 Pension Reforms 
--------------------------------------------- --- 
 
¶2.  (U) Parliament recently approved the GoA's pension reform bill, 
which reverses some features of the 2003-2004 pension reforms.  The 
SPO had promised during the October 2006 election to provide more 
"social fairness and security" and to correct "unfair reforms" 
implemented by previous governments.  This reform fulfills part of 
the governing coalition's labor program, but not the crucial reform 
to harmonize the various public pension systems. 
 
¶3.  (U) The reform extends from 2007 to 2010 the possibility to 
retire early without cuts in pension payments at age 60 for men upon 
completion of 45 work years and for women at age 55 with 40 years of 
work.  The reform will cost an estimated Euro 23 million in 2008 and 
Euro 86 million in 2010.  The reform became effective on July 1, 
with some regulations retroactively effective to January 1, 2007. 
 
¶4.  (U) The IMF Staff Report on the 2007 Article IV Consultation of 
April 2007 praised the GoA for achievements on the structural front, 
including on pension reform. However, the IMF urged further reforms, 
particularly closing remaining loopholes encouraging early 
retirement.  The IMF maintained that further reforms are necessary 
to contain pension expenditures over the long run in the face of an 
aging population.  The June 2007 OECD report "Pensions at a Glance 
2007" criticized the GoA's slow phase-in of the recent pension 
reforms.  Furthermore, the OECD noted that Austria maintains the 
second highest public spending on pensions in the 30 OECD countries, 
even after recent changes to the pension system. 
 
 
Comment 
------- 
 
¶5.  (SBU) The reversal of some of the features of the 2003-2004 
pension reforms reflects an effort by the SPO to keep an election 
campaign promise.  The recent bill is highly questionable for 
several reasons.  First, the GoA has not yet completed its 2003-2004 
pension reforms, including the important harmonization of the 
various public pension systems.  Second, the long-term financial 
sustainability of the pension system in view of the aging population 
is not yet safe, as reflected in the IMF and OCED comments. 
Finally, the GoA has not undertaken enough to reduce the incentives 
encouraging early retirement. 
 
¶6.  (SBU) Minister of Social Affairs Erwin Buchinger characterized 
the OECD criticism as ideologically motivated.  Buchinger also 
announced plans to lift the 2010 time limit for length of service 
retirement (men with 45 years of service, women with 40) entirely 
and to facilitate access to disability retirement.  These proposals 
and the recent pension bill reflect the SPO's social agenda, which 
ignores harsh economic and demographic realities. 
 
MCCAW