FINANCIAL MARKET CRISIS: BUDGET POLICY AUSTRIAN ECONOMIC QUARTERLY 1/2010 103 Hans Pitlik, Margit Schratzenstaller The Financial Market Crisis and Budget Policy In the coming years we expect high public deficits, largely due to the effects of the financial and eco- nomic crisis. For at least five years, the budget plan drawn up in the 2009 to 2013 Austrian Stability Pro- gramme projects net state borrowings exceeding the Maastricht limit of 3 percent of GDP. Potential for a consolidiation of public budgets can mainly be found on the expenditure side, while there is little room increasing revenues. Hans Pitlik and Margit Schratzenstaller are economists at WIFO. The authors are grateful to Karl Aiginger and Gunther Tichy for useful and constructive comments. The data were processed with the assistance of Andrea Sutrich  E-mail-addresses: Hans.Pitlik@wifo.ac.at , Margit.Schratzenstaller@wifo.ac.at The global financial market and economic crisis will influence the budget path for some years to come. Since autumn 2008, the greatest challenge in budget policy was to soften the effects of the crisis on the real economy. To this end, a worsening of the public deficit position had to be accepted. The decline of cyclical tax and social security contributions and the consequences of rising unemployment have substantially burdened the budgets of industrialised countries. Discretionary stimulus programmes, which have also contributed to stabilising growth and employment, have further increased government deficit and debt. Additionally, various support measures for banks have an immediate effect on pub- lic debt (e.g., participatory capital) and may result in future budget constraints (gov- ernment guarantees for bank emissions). As early as September 2009, the European Commission requested that the member states prepare a strategy for the reduction of debt by the end of 2009. In October 2009, the European finance ministers agreed to implement consolidation measures in 2011, provided economic development had stabilised. In the context of future consolidation, fiscal requirements have to be reconciled with both short-term stabilisation policies and general distributional con- cerns. According to the base scenario of the updated stability programme for 2009 for 2013, the Maastricht deficit for the general government increases from 0.4 percent of GDP in 2008 to 3.5 percent of GDP in 2009 1 . In 2010 and the following years it is projected to reach 4.7 percent of GDP and only decline slightly to 3.9 percent of GDP by 2013. For at least five years the implied path of public finances therefore forecasts net state borrowings that lie significantly above the Maastricht limit of 3 percent of GDP. However, from today's perspective, the forecasts presented in spring appear to have been overly optimistic. Based on the budgetary notification from the end of September, the federal finance ministry anticipates a budget deficit of 3.9 percent for this year, while the International Monetary Fund and the European Commission, respectively, expect the deficit to reach 4.2 percent and 4.3 percent of GDP. WIFO has forecast a budget deficit of 4.2 percent, which may increase to as much as 5.2 percent of GDP in 2010. 1 The article was completed in the end of November 2009 and thus before the publication of the updated stability programme of January 2010. Budget policy before and after the crisis