According to Marcel Fratzscher, President of the German Institute for Economic Research (DIW), German citizens should brace themselves for a potential two‑percentage‑point increase in the value‑added tax (VAT), raising it to 21 %. “Both parties have drawn their red lines and do not appear willing to back down” Fratzscher told the “Redaktionsnetzwerk Deutschland”. “The Union rejects tax hikes, the SPD does not want to cut the social state, and neither side wants to reduce subsidies”. He added that, in the end, the coalition will “make it easy for itself: it will raise VAT by two points, which would bring an additional €30 billion”.
Fratzscher argues that such a hike would be “socially fatal” disproportionately affecting low‑income households. Nevertheless, he sees it as the “politically comparatively convenient” way out among the alternatives available. “To plug the more than €130 billion gap from 2027 to 2029, tax increases and the dismantling of subsidies are necessary” he said.
He urged a significant hike in property tax. “Germany taxes wealth far lower than other industrialised nations” he noted. While a wealth tax would be desirable for the ultra‑rich, international coordination would make it difficult to implement now. In contrast, property tax-taxing land and buildings-offers a large revenue potential, as “land and buildings can’t run away”.
Fratzscher also demanded the elimination or at least cutting back of climate‑harmful tax subsidies, which he estimates total €60 billion. He cited the diesel privilege, the kerosene tax exemption, and the commuter allowance as examples that distort competition and create wrong incentives. “It is utterly nonsensical to profit from living far away from one’s workplace” he added.
Finally, he called for the abolition of the marriage‑splitting system, which costs the state about €22 billion, in favour of a so‑called real‑splitting scheme that would reduce this expense.