Tax Cut in Half:

Tax Cut Halved: Consumers Save Very Little

According to a new calculation, the tax cut will save consumers significantly less than 100 euros a year.(Bild: Uta Rojsek-Wiedergut)

Since July, the value-added tax on certain food items has been cut in half. According to the Ministry of Finance, this is supposed to save households up to 100 euros each year. But a new calculation now shows that, in practice, consumers are saving much less money than the ministry estimated.

Instead of 10 percent, the sales tax has been just 4.9 percent for a good two months now—though this applies only to staple foods. The Ministry of Finance estimates that each household can save up to 100 euros a year on average. According to a new calculation, however, the reality is much more sobering.

57 Instead of Up to 100 Euros
On average, a household saves only 57 euros a year as a result of the tax cut. This is the conclusion reached by the market research institute OGM in its analysis—and it also offers an explanation for why the savings are significantly lower than calculated by the Ministry of Finance.

According to a new calculation, consumers save significantly less than 100 euros a year as a result of the tax cut.(Bild: Uta Rojsek-Wiedergut)

OGM examined approximately 2,000 receipts from just under 870 people and found that most of the groceries consumers buy are not subject to the reduced tax rate. Only just under a quarter of the money consumers spend on groceries goes toward products subject to a reduced tax rate of 4.9 percent. Conversely, this means that three-quarters of their grocery spending goes toward products subject to the standard 10 percent value-added tax.

The lower tax rate does not apply to all types of bread and baked goods.(Bild: Picture-Factory – stock.adobe.com)

Wheat flour yes, rye flour no
The reason consumers save only 57 euros instead of up to 100 euros a year is simple: The regulations governing which food items are now subject to a reduced tax rate are complicated. “The range of goods actually covered is smaller than previously believed,” explains Johannes Klotz of OGM.

For example, while the reduced tax rate of 4.9 percent applies to wheat flour, it does not apply to rye flour. Even with bread and pastries, it makes a difference which loaf or roll ends up in the shopping cart. If the fat or sugar content is too high, the standard 10 percent tax still applies. In practice, this can mean: pretzel sticks—yes; pretzel triangles—no.

Calculations Vary
How much money households can save therefore depends on their shopping habits. Originally, the Parliament’s Budget Office had estimated the savings at 45 to 119 euros per year (depending on household size). The Momentum Institute, on the other hand, arrived at a figure of 77 to 108 euros, depending on income bracket.

The Ministry of Finance projected total annual costs of up to 400 million euros. In purely mathematical terms, that would amount to just under 100 euros for each of the 4.16 million households in Austria. A spokeswoman for the ministry emphasizes that this cost estimate already takes tax exemptions into account.

Some people won’t save anything at all...
Overall, the savings for consumers are likely to be modest. And those who order a lot of packages may soon find they’re not saving anything at all. That’s because a package tax is intended to help finance the VAT reduction on basic foodstuffs. Starting in October, a fee of 2.40 euros (two euros before tax) per package will apply to all online retailers with annual sales exceeding 100 million euros. The bottom line is that some Austrians may actually have less money in their wallets.