Key areas of public sector activity are subject to complex fiscal relations across the layers of government. Revisiting the distribution of tasks and funding principles within the federation is likely to have a very significant potential to improve public sector efficiency. Fragmentation of decision-making in some spending programmes, such as hospital care and social assistance benefits, needs to be overcome, concentrating financing and spending responsibilities on one government level. Strengthening co-operation between municipalities as well as amalgamations of small municipalities would allow to take advantage of scale economies in the provision of local government services. Stronger tax-raising powers of the municipalities and the states, reform of tax sharing rules, as well as improved budgeting procedures would raise the ability of sub-national governments to match supply of services to local demand patters and improve accountability to voters. The Constitutional Convention (Österreich Konvent) has fostered debate on constitutional reform, providing inter alia an opportunity to improve fiscal federal relations along these lines.