Family allowances in Austria may no longer rise with inflation starting in 2026, as the government looks to rein in public spending with a controversial new legislative package.
Austria’s government is planning to freeze inflation-linked increases in family allowances from 2026 to 2027, as part of a sweeping austerity package to curb the rising deficit.
The move would suspend a key policy introduced in 2023 that helped benefits keep pace with rising prices.
Introduced in 2023 by the then ÖVP-Greens coalition as a counterbalance to the end of cold progression, this measure helped shield families from the effects of rising prices. This year, for instance, the allowance rose by 4.6 percent.
While the official draft law doesn’t name family benefits directly, accompanying documents confirm that “the valorisation of certain family benefits is to be suspended” in 2026 and 2027, according to Der Standard.
Austria’s budget under pressure
Austria is facing a budget deficit of around 4.5 percent of GDP this year, well above the EU’s 3 percent guideline. In response, the red-pink-turquoise coalition has pledged a series of cost-cutting reforms ahead of Marterbauer’s budget speech on May 13th.
READ ALSO: What benefits are you entitled to in Austria if you have children?
The new legislative package covers a wide range of measures, including increased taxes on foundations and online lotteries, changes to real estate transfer taxes, and the partial rollback of cold progression relief.
One of the more controversial aspects is the suspension of the so-called “third third” of cold progression compensation, which previously required a separate political decision to implement. Scrapping this mechanism is effectively a tax increase, which could impact middle-income earners.
The Ministry of Finance estimates that the planned tax increases and loophole closures will bring in €76 million this year and €696 million in 2026.
Advertisement
Family benefit changes spark debate
The freeze on inflation adjustments for family benefits is expected to save the government around €150 million in 2026 and €300 million per year from 2027 onwards. But the political sensitivity of the move is considerable, particularly for the ÖVP, which has long positioned itself as a “family party.”
The family allowance amount depends on the child’s age and the number of children in the household. For example, a family receives EUR 148 per month for a child aged three, and €171.80 from age ten. Families with multiple children receive additional surcharges.
READ ALSO: Familienbeihilfe: How can I get Austria’s family allowance payments?
The proposed change has already drawn criticism. Green MP Jakob Schwarz criticised the move, saying the SPÖ is now enacting proposals floated during coalition talks by the ÖVP and FPÖ. “This is really bitter for those who have been hit hardest by rising prices in recent years,” he told Der Standard.
Christoph Badelt, head of Austria’s Fiscal Council, has also expressed scepticism about indexation in the past, warning that automatic adjustments drive up spending even when revenues lag behind.
Other key tax changes
The government’s new fiscal package includes some limited offsetting measures, such as tripling the so-called “commuter euro” from €2 to €6 per kilometre, partially compensating for the loss of Austria’s climate bonus.
Advertisement
Other measures include:
The return of the tax-free employee bonus of up to €1,000;
Higher tax on donations to private foundations from 2.5 to 3.5 percent from 2026;
An increase in the revenue threshold for simplified small business accounting, rising from €220,000 to €320,000 this year and €420,000 in 2026.
The legislative package is now under parliamentary review, with a final vote expected in the coming weeks.
READ NEXT: EXPLAINED: The tax benefits that parents and families receive in Austria