Ifo President Clemens Fuest is advocating for the elimination of the reduced seven percent VAT rate. Instead, he proposes providing credits to lower-income households.
Fuest stated to the “Bild” (Thursday edition) that under the proposed system, all goods would be taxed at the same rate. This change would mean that products currently benefiting from the reduced VAT, particularly food, would become more expensive. If companies were able to pass on the entire increase, prices could rise by up to twelve percent, although this is likely to be less since businesses will not be able to fully absorb the tax increase in their pricing.
The goal is to simplify the entire system and generate additional revenue for the state. To protect low-income households from disproportionately high burdens, Fuest suggests a credit of 360 euros per year for these families. These credits would be available to all households with a gross annual income of up to 55,000 euros.
Following these compensation payments, the state would receive over 36 billion euros annually in additional revenue. Fuest summarized his objective as being “to abolish the VAT chaos without placing a heavier burden on the poorest households.”
