People sometimes seem confused about what it means, but I don’t find it problematic. In an economic context, “austerity” has this sense:
(1) a situation where the net effect of a government budget (in all its aspects whether spending or taxation, etc.) is contractionary fiscal policy in which aggregate demand is reduced or drained from the economy. E.g., the fiscal policy of Greece and Ireland after 2008 was an example of this type of austerity.However, sometimes people use the word “austerity” in a secondary, looser sense:
(2) a situation in which a government reduces a previously expansionary fiscal policy to a much weaker one but where the net effect of fiscal policy is actually expansionary rather than contractionary. In this sense, the government “austerity” consists in the reduction of the expansionary effect of fiscal policy. E.g., it would seem that the Tory-Liberal Democrat government that ruled Britain from 2010–2015 more or less pursued this type of austerity.When people talk of “austerity,” they usually think of type (1), and so confusion is frequently caused in political and economic debates when people use the word in sense (2).
Type (2) “austerity” means that a government is refusing to create stronger aggregate demand in an economy by cutting the strength of its fiscal stimulus to a weaker level, though in reality its fiscal policy is still (even if only weakly) expansionary. This means that the economy is forgoing a higher level of output and employment: unemployment, for example, will be higher than it needs to be. But type (2) austerity is still a form of fiscal expansion, and this should not be forgotten. An economy may well continue to have positive GDP growth and continue on a less robust growth path under type (2) austerity, since the government is not actually reducing aggregate demand in the way it would in type (1) austerity.
To avoid confusion, one has to distinguish these two senses of “austerity.”