By changing the legal bases in 2018, the ÖVP-FPÖ government had enforced a much criticised adjustment mechanism with the effect that since the beginning of 2019 family benefits for EU citizens working in Austria, whose children reside permanently in another EU Member State, were adjusted to the price level of the children’s state of residence. The indexation affects benefits such as family allowances and child tax credit, allowances for more than two children, increased amounts in case of severe disability, but also family tax benefits such as the Family Bonus Plus. The price adjustment mainly affects workers employed in Austria but originating from Hungary, Slovakia, Rumania, Poland and Slovenia, as in these countries the price level is lower than in Austria. For workers, who operate in low-paid – and socially important – sectors, such as inpatient care, mobile and 24-hour care, retail etc., indexation is associated with huge financial losses. This means a reduction of approximately 50 % for children living in Bulgaria, Rumania, Poland and Hungary. In 2019, a total of 137,100 children living in the /EEA area were affected by the indexation, whereas the figure for 2021 amounted to approximately 125,300 children.  

Indexation is not compatible with EU-law

According to the judgment of the European Court of Justice (ECJ), the so-called adjustment mechanism infringes against the freedom of movement for workers, one of the cornerstones of European jurisdiction. The social rights of cross-border workers have been restricted as their taxes and social security contributions pay towards financing social benefits in the same way as those of Austrian workers; however, they do not receive the same benefits and tax advantages. Apart from that, indexation represents an illegal discrimination due to citizenship: the adjustment mechanism mainly affects workers of other Member States and non-Austrians. Within the scope of infringement proceedings launched in 2019, in 2020, the EU Commission has taken its case against Austria to the ECJ, which has now found that Austria, by implementing the indexation, infringed against its union law obligations. Austria must now take measures to ensure that that all families affected are reimbursed quickly and unbureaucratically with the reduced amounts.

The costs of a populist measure

The then ÖVP/FPÖ government argued in favour of indexation also based on expected savings, which were not realised. However, more significant is the additional administrative time investment, created by the indexation (e.g. increased scope of inspection), which will now happen due to the required revocation. When the indexation was implemented, the Austrian Family Ministry had already begun to building up financial reserves for possible repayments in the case of EU illegality. However, the political damage of the populist measure is not yet apparent.

Revoking the indexation for all families concerned and all family benefits

Even though the automatic repayment of the reduced payments as regards family allowances has been provided for, recipients, who do not receive regular benefits because they might have left the Austrian labour market due to the Covid pandemic, have to apply for repayment. In particular, workers with migration background were affected by the labour market crisis caused by the pandemic; this is also indicated by the reduction of the number of children eligible for benefit in other EU/EEA states. Family tax benefits, such as the Family Bonus Plus also have to be reimbursed. In times of exceptionally high inflation rates, families, affected by reductions are particularly dependent on family benefits. Hence, reverse action has to be taken quickly, unbureaucratically and for all families affected.

Further information:

European Court of Justice: Judgment on the indexation of Austrian Family benefits from 16.06.2022

A&W Blog: Family benefits, national populism and legal reality (German only)