Economists are split over the government’s proposal to raise the value‑added tax. “That would be a sensible step that would increase incentives for work and Germany’s competitiveness” Ifo president Clemens Fuest told “Handelsblatt” in its Thursday issue. Likewise, economist Gabriel Felbermayr welcomed the idea, adding, “It can indeed be useful to raise VAT and use the additional revenue to cut more harmful taxes or levies”.
DIW president Marcel Fratzscher remains skeptical. He warned that such a reform package would redistribute wealth from both the top and the bottom to the middle of society, and that many low‑income workers could actually be worse off. “A lot of workers with small incomes might be disadvantaged by this kind of reform” he said.
Opposition members in the Bundestag consider the proposal a bad idea. Greens deputy floor leader Andreas Audretsch called it madness that “the Union is seriously thinking of further inflating inflation in the middle of an oil‑price crisis by raising VAT”. Greens finance policy maker Katharina Beck agreed, noting that “there is little worse than raising VAT in the current economic situation”.
According to “Handelsblatt”, the Federal Ministry of Finance, at the request of the Chancellery, is reviewing several models. One option would raise the standard VAT rate from 19 % to 21 %. In exchange, the reduced rate for everyday goods could fall from seven %. The extra revenue could also be used to cut taxes and levies on earned income.