Definition of austerity measure

Austerity measures refer to official actions taken by the government, during a period of adverse economic conditions, to reduce its budget deficit using a combination of spending cuts or tax rises.

Various austerity measures have been announced since the global recession in 2008 and the Eurozone crisis in 2009. [1]

Example: Austerity in Europe

The French government’s 2013 budget, unveiled in 2012, piled most of the burden of its €30bn savings on big companies and the wealthy, avoiding the severe cuts imposed on the broader population in Spain, Portugal, Greece and elsewhere. [2]

As promised by François Hollande, the president, the budget largely spared the French the kinds of hefty cuts in public spending and employment, pensions and salaries imposed in other eurozone countries struggling to contain their sovereign debt.

The savings include €2.2bn in a scaled back defence budget. Another €2.5bn will be saved in 2013 by limiting the rise in state health spending to 2.7 per cent. Extra tax measures in 2012 will add another €4.4bn.

Some economists and business leaders fear that the steep tax increases and relatively modest spending curbs could undermine France’s projected annual growth path of 2 per cent a year from 2014 to 2017, when it plans to have eliminated the structural deficit. [3]

In addition, there are plans to tax earnings above €1m at 75 per cent. According to Jean-Paul Agon, chairman and chief executive of L’Oréal, one of the world’s largest cosmetics company, pointed out that France will find it "almost impossible" to hire top talent if the government goes ahead with this income tax band. [4]

The UK is also facing a deficit reduction programme beginning with a freeze in child benefit in April 2011 and changes to the rate at which the top band of income tax kicks in. This interactive calendar explores the key changes:

Interactive graphic: A timetable for austerity Britain


In depth: Austerity Europe

Leftists march in Paris against austerity

France unveils tough budget measures

L’Oréal chief hits out at 75% income tax