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Germany Weighs VAT Shake-Up as Top Economist Backs Conditional Rate Hike

The push to swap a higher sales tax for lighter taxes on wages signals a tilt toward taxing spending over work.

Moritz Schularick, Präsident des Kieler Instituts für Weltwirtschaft, spricht während eines Interviews. Der Ökonom leitet das Institut seit Juni 2023. (zu dpa: «Ökonom hält höhere Mehrwertsteuer für sinnvoll»)
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Overview

  • Moritz Schularick, in interviews published Saturday, backed a higher value-added tax only if income tax and social contributions fall by the same amount.
  • The governing coalition is exploring changes to the value-added tax, which is a sales tax on most goods and services, including a rise in the standard rate to 21% and a cut for food.
  • Finance Ministry estimates cited by researchers put annual revenue from a two-point VAT hike near €31 billion, while scrapping VAT on staple foods would cost about €16–17 billion.
  • Economic institutes warn a cut to the food VAT would only partly reach shoppers, with studies expecting roughly 50% to 75% pass-through at the checkout.
  • The retail lobby sent a warning letter to the finance minister arguing a VAT hike would hit consumption and city-center stores, while many readers voiced fears about higher prices for low- and middle-income households.