A remedy for inflation?

Expert: “You just have to look around Europe”

Food is taxed comparatively heavily in Austria.(Bild: Rojsek-Wiedergut Uta)

According to some experts, high food prices could be reduced relatively easily by lowering VAT. This is relatively high in this country at ten percent. There are repeated calls for a change from politicians and economic researchers, most recently from the head of the Austrian Institute of Economic Research (WIFO), Gabriel Felbermayr.

"We have a high VAT rate in Austria. A reform of the system could make everyday shopping easier," said the economist on ORF's "Pressestunde" program."You only have to look around Europe to see that countries that have lower VAT rates on food also have lower food prices. It's almost a truism."

Felbermayr advises a tax reduction.(Bild: Jöchl Martin)

Catch: reduction would have to be passed on to customers
Felbermayr recommends that Federal Chancellor Christian Stocker sits down at a table with the four major retail chains and negotiates "an oath of allegiance" so that the VAT reduction is passed on to customers as a price reduction.

The problem with a tax reduction is, of course, the loss of up to one billion euros in tax revenue. Here, Felbermayr advocates a reform of the system.

You only have to look around Europe to see that countries with lower VAT rates on food also have lower food prices. It's almost a truism.

WIFO-Chef Felbermayr

In order to compensate for the loss of revenue through a reduction in VAT, exemptions should be removed and the higher VAT rate of 20 percent should be raised moderately. Specifically, the economist suggests going to five percent for food or for goods that are now reduced and adding one and a half percentage points to the standard rate. There would be a risk of taking in 100 to 200 million too much or too little in VAT, "but I think that's the only thing that speaks against it". Germany has had good experience with a VAT reduction during the coronavirus pandemic.

Finance Minister Markus Marterbauer (SPÖ) has so far ruled out a reduction in VAT on food. However, the ÖVP, of all parties, which has always rejected the SPÖ's demand for a VAT reduction, recently made a corresponding proposal. A reduction would be "a great lever" to curb prices, said Barbara Eibinger-Miedl, ÖVP State Secretary in Marterbauer's Ministry of Finance, recently. "You won't be able to reduce VAT on a grand scale, but perhaps you can turn a screw here and there."

2025 is a "year of stagnation"
Commenting on the new economic forecast, which WIFO will present on Tuesday together with the Institute for Advanced Studies (IHS), Felbermayr said that nothing has changed in terms of the basic expectation. After two years of recession, 2025 will be a "year of stagnation" and a slight economic recovery is not expected until next year, with gross domestic product (GDP) currently growing less strongly than in the past.