(de-news.net) – German policymakers are debating value-added tax (VAT) reforms, including eliminating the tax on essential foods to ease inflation, while proposals to raise overall VAT face political resistance. Economists and stakeholders highlight limited consumer relief, fiscal trade-offs, and broader concerns over cost-of-living pressures and energy prices.
In the ongoing debate over adjustments to value-added tax (VAT) in Germany, Jens Spahn, leader of the CDU/CSU parliamentary group, advanced the proposal to abolish VAT on essential goods as part of a broader and internally coordinated fiscal package. He indicated that such a measure could function as an anti-inflationary instrument, particularly against the backdrop of rising energy costs linked to the Iranian crisis, which have intensified upward pressure on consumer prices. Because lower-income households devote a comparatively larger share of their income to basic necessities—most notably food and housing, the latter already exempt from VAT—extending the exemption to staple goods was framed as a logically consistent addition to existing relief policies.
At the same time, it was emphasized that this proposal should be assessed within a comprehensive fiscal framework that could also encompass a general increase in VAT rates to address structural budgetary imbalances. Although the reduced VAT rate currently stands at seven percent, compared with the standard rate of 19 percent, its removal for essential goods was characterized as a targeted compensatory measure with a social policy rationale. Spahn further noted that a range of reform options remained under internal review and that both economic justifications for, and political objections to, a broader VAT increase would be carefully weighed before any formal position is adopted.
Rehlinger warns VAT hike would deepen cost-of-living pressures
Criticism regarding a potential VAT increase was articulated by Anke Rehlinger, Minister-President of Saarland, who cautioned that such a step could further elevate already high living costs. Instead, she advocated a redistribution-oriented approach combining targeted income tax relief for the majority of taxpayers with increased contributions from top earners. Within the federal government, discussions have reportedly included the possibility of raising the standard VAT rate from 19 to 21 percent, potentially offset by reductions in the lower VAT rate as well as in taxes and social levies on labor income. Rehlinger also expressed conditional support for abolishing the spousal income-splitting system, provided that existing beneficiaries would retain their current advantages, thereby ensuring continuity and legal certainty. To strengthen public revenues, she called for reforms to inheritance taxation, arguing that the present system imposes relatively heavier burdens on smaller inheritances than on very large estates. These positions are expected to inform the Social Democratic Party’s forthcoming deliberations on its medium-term policy framework.
Support for eliminating VAT on essential goods was likewise expressed by Heidi Reichinnek, parliamentary leader of the Left Party, who characterized the proposal as overdue and consistent with longstanding party positions aimed at alleviating financial pressures on the majority of households. At the same time, she criticized considerations within the Federal Government to raise VAT on other goods and services, arguing that such an approach would effectively neutralize any relief by increasing overall consumer costs, given that most goods and services fall under the standard VAT rate. Comparable concerns were raised by Andreas Audretsch of the Green Party, who suggested that increasing VAT during a period of elevated energy prices could amplify inflationary dynamics and called into question the coherence and effectiveness of the policy response.
Call for cheaper essentials meets skepticism as German states call for broader energy tax cuts
Against the backdrop of anticipated increases in food prices, the Sozialverband Deutschland urged the federal government to implement a prompt reduction in VAT on essential goods. Its leadership emphasized that access to adequate and healthy nutrition should remain affordable irrespective of income, framing this as a matter of social equity. Targeted tax reductions were presented as a potentially effective instrument for consumer relief, provided that the resulting cost savings are fully and transparently passed on along the supply chain to end consumers.
Economic analyses suggest that abolishing VAT on staple goods would generate modest but tangible savings for households. According to Tobias Hentze of the Institut der Deutschen Wirtschaft, monthly relief could amount to approximately 15 to 30 euros, depending on household size and consumption patterns. Similar per capita estimates were reported by Friedrich Heinemann of the ZEW – Leibniz Centre for European Economic Research, who additionally projected annual public revenue losses in the range of about 17 billion euros. Both analysts expressed reservations regarding the extent to which retailers would pass on the tax reduction, suggesting that only a portion—potentially between one-half and three-quarters—would be reflected in lower consumer prices. They further noted that any initial relief effect could diminish over time as prices are adjusted upward in response to rising production or labor costs, thereby limiting the long-term impact.
In parallel, the energy ministers of the federal states called for a rapid reduction in electricity taxes for all consumers, thereby extending beyond the Federal Government’s current emphasis on industrial relief. In their joint position, such a measure was presented as capable of providing immediate mitigation of high energy costs for both households and businesses. The ministers also urged the Federal Government to consider additional policy instruments, including price caps, windfall profit taxes, and higher commuter allowances, as part of a broader response to energy price pressures. The resolution received near-unanimous support among the Länder, with Bavaria standing as the sole dissenting state, underscoring both the breadth of concern and the limited degree of disagreement within the federal framework.
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