Clemens Fuest, President of the Munich-based Ifo Institute, is advocating for the abolition of the seven percent reduced value-added tax (VAT) rate in Germany. Fuest proposed that all goods should be taxed uniformly at the current rate of 19 percent, aiming to simplify the system and generate additional state revenue. {claim:1} {claim:2} {claim:9}
Under the current system in Germany, a seven percent VAT rate applies to basic foodstuffs such as bread, milk, vegetables, and tap water, along with cultural goods like books, newspapers, and cinema tickets. Meanwhile, services and items such as mineral water, oat milk, and alcoholic beverages are subject to a 19 percent rate. {claim:12} {claim:13}
The different tax rates lead to unnecessary complexity, delimitation problems and arbitrary unequal treatment.
— Clemens Fuest, told Bild newspaper
Fuest stated that the move should offer a chance to end VAT chaos without increasing the burden on the poorest households. To protect low-income families, he suggested they receive annual state credits. {claim:11} {claim:4}
360 Euros
Proposed annual credit for low-income households
The proposal estimates that the increased tax burden would primarily affect the half of the population with higher incomes, specifically those earning a gross income of approximately over 55,000 euros. {claim:6}
If the tax increase is fully passed on to consumers, prices could rise by up to twelve percent, though some observations note that companies may not pass the full amount on. {claim:7}
The report indicates that after deducting compensatory payments, more than 36 billion euros in additional revenue would remain for the state annually. {claim:8}
Fuest noted that all goods currently under the reduced rate, especially food, would become more expensive following the change. {claim:3}
In Denmark, a uniform VAT rate of 25 percent is applied to all goods.
Updates
Clemens Fuest expects that a tax change would lead to a price increase of less than twelve percent, as companies are unlikely to pass the full cost on to consumers. Additionally, the Ifo Business Climate Index showed a continuous upward trend, rising to 86.6 points in July from 85.7 points in June.
Clemens Fuest expects that price increases resulting from the proposed tax change will remain below twelve percent, as companies will be unable to fully pass the costs on to consumers. Additionally, single-source reports indicate that the Ifo Business Climate Index rose in July to 86.6 points from 85.7 points in June, marking a third consecutive increase.
Clemens Fuest estimates that his proposal would cost the state 43.5 billion euros annually but could generate a 36.2 billion euro surplus, which could be used to reduce the regular VAT rate to 17 percent. Under this plan, the poorest half of the population would face an average monthly increase of 30 euros, requiring a 7.2 billion euro state compensation to offset costs. Fuest further expects that price increases would stay below twelve percent as companies are unlikely to pass the full tax burden to consumers.
Clemens Fuest estimates that the proposed reform would generate a 36.2 billion euro surplus, which could be used for budget relief or to reduce the standard VAT rate to 17 percent. His calculations suggest that while the poorer half of the population might pay an average of 30 euros more per month, the state would only need to provide 7.2 billion euros in compensation. Additionally, Fuest expects that companies would not be able to fully pass on the tax, resulting in a price increase of less than twelve percent.
Clemens Fuest estimates that his proposal would cost the state 43.5 billion euros annually, with the poorer half of the population facing an average monthly increase of 30 euros. To compensate these households, a state expenditure of 7.2 billion euros would be required, potentially leaving a 36.2 billion euro surplus to reduce the budget or lower the standard VAT rate to 17 percent. While Fuest expects price increases to remain below twelve percent due to limited corporate pass-through, SPD General Secretary Tim Klüssendorf has rejected the demand, stating the party will not increase consumption taxes.
Clemens Fuest expects that companies will not fully pass the tax increase to consumers, resulting in a price hike of less than twelve percent. Additionally, Fuest noted a cautious trend reversal in the German economy, observing that while companies view their current situation with skepticism, they are evaluating business prospects more optimistically. The Ifo Business Climate Index also rose to 86.6 points in July from 85.7 points in June, marking its third consecutive increase.
The Ifo Business Climate Index rose to 86.6 in July from 85.7 in June, marking its third consecutive increase, while Fuest noted a cautious economic reversal and improved business outlook despite lingering skepticism; he also confirmed that the reduced VAT rate costs the state 43.5 billion euros annually and that his proposed reform would require only 7.2 billion euros in compensation for low-income households, generating a 36.2 billion euro surplus that could lower the standard VAT rate to 17 percent.
The Ifo Business Climate Index rose to 86.6 points in July, up from 85.7 in June—marking its third consecutive increase—while Fuest noted a cautious economic reversal and observed that firms are slightly more skeptical about their current situation but more optimistic about future prospects; he also clarified that under his VAT reform, the poorer half of households would face an average monthly cost increase of 30 euros, offset by a targeted 7.2 billion euro state subsidy, with the reform generating a 36.2 billion euro surplus that could fund budget relief or lower the standard VAT rate to 17 percent.
Clemens Fuest now estimates that companies cannot fully pass on the tax increase to consumers, projecting a price rise of less than twelve percent, while the Ifo Business Climate Index rose to 86.6 in July—its third consecutive monthly gain—reflecting a cautious economic reversal; however, SPD officials including Frauke Heiligenstadt and Tim Klüssendorf have rejected the plan, arguing it would disproportionately burden low-income households and that Fuest’s calculations 'do not add up at all,' even as the government faces budget gaps and considers VAT adjustments to fund income tax reform.
The Ifo Business Climate Index rose to 86.6 in July, up from 85.7 in June, marking its third consecutive increase, while Fuest noted a cautious economic reversal and improved business outlooks despite lingering skepticism; he also clarified that the reduced VAT rate costs the state 43.5 billion euros annually and that his proposed reform—replacing it with uniform taxation and targeted credits—would raise monthly costs for the poorest half by 30 euros, offset by a 7.2 billion euro state payout, leaving a 36.2 billion euro surplus for budget relief or VAT reduction to 17%.
The Ifo Business Climate Index rose to 86.6 in July from 85.7 in June, marking its third consecutive increase, while Fuest clarified that companies are slightly more skeptical about their current situation but more optimistic about future prospects, and he expects price increases under his VAT reform to remain below 12% due to limited pass-through by firms; meanwhile, SPD officials including Tim Klüssendorf and Frauke Heiligenstadt rejected the proposal, with the latter asserting Fuest’s calculations 'do not add up at all' and estimating a family would face €600 more annually in grocery costs without the reduced rate.
