The German federal government is reportedly looking into raising the standard value‑added tax (VAT) rate from 19 % to 21 %. The measure would be part of a larger package designed to offset the increase by cutting income tax or social contributions. According to several government officials cited by “Handelsblatt”, the Finance Ministry has run different scenarios. Social democrats see a two‑percentage‑point hike as a way to finance lower income tax rates for low and middle‑income earners, while Union representatives would support a rise if it led to a noticeable reduction in social security contributions.
To soften the impact on low‑income households, discussions are underway about lowering the reduced VAT rate from its present 7 % to as low as 4 %. For food, the possibility of a zero‑rate is also being considered. However, a decision has not yet been reached.
Critics within the governing coalitions argue that such a VAT increase would be politically difficult to pass. They point to the ongoing war in Iran and rising energy prices as reasons that further price increases would be hard to justify; with energy costs already high, a general VAT rise could be seen as an additional burden.
Currently, the regular VAT rate stands at 19 %. A 1 % increase would bring in over €15 billion in additional revenue, while a 2 % rise would yield roughly €31 billion. The reduced rate of 7 % applies to everyday necessities such as food, books, certain cultural and sporting events, and public transport.
