VAT Reduction on Basic Foodstuffs Takes Effect: Critics Say Relief Falls Short

The Parliamentary Budget Office has calculated the average relief per household. For low-income earners, this yields an annual benefit of around 57 euros; for top earners, it amounts to up to 87 euros. For single-person households, the relief is about 45 euros per year; in households with at least five people, it rises to 119 euros.

One Family of Eight's Personal Calculation

A family of eight, who say they spend roughly 1,600 euros a month on food, currently sees a calculated saving of about 7.61 euros per month. Per shopping trip, that works out to around 76 cents, the person affected calculates. She is disillusioned: that corresponds to roughly one school lunch for one of her six children, around five liters of fuel, or a train ride from Wels to Linz.

The woman said in a statement that she feels "nach Strich und Faden verarscht zu werden," and said that with the next price increase on cocoa, spices, spreads, or beverages, the handout will quickly be eaten up again. While she can understand that the government needs "Jubelrufe," she does not see it as any tangible help.

Criticism from Business and the Opposition

There has also been sharp criticism from the business community. Gabriel Felbermayr called the implementation of the VAT cut last week "enttäuschend" and "ein Riesendesaster." FPÖ social affairs spokesperson Dagmar Belakowitsch spoke of a "bürokratisches Chaos" and said the tax cut was "nicht einmal ein Tropfen auf den heißen Stein."

The Trade Association, for its part, defended the measure and stressed that member companies had invested around six million euros over the past months to ensure a "reibungslose Umstellung." Especially for small and medium-sized businesses and local providers, "dies eine große und kostenintensive Herausforderung" had been involved, the association stated.

Bakers see themselves as particularly burdened by the new rules. Industry representatives criticized the tax cut as a "Bürokratiemonster" because the fat and sugar content of every baked good must be determined exactly in order to apply the reduced rate. This involves considerable administrative effort.

Counter-Financing and Parcel Levy

The government plans to partially counter-finance the VAT reduction, which has a volume of around 400 million euros per year. To this end, the likewise controversial parcel levy is to be drawn upon, with an expected tax revenue of around 280 million euros. In addition, an import levy of three euros on small parcels from abroad will be collected from July, provided the value of the goods is below 150 euros.

According to the EU Council, the import levy on small parcels from abroad affects around 93 percent of all e-commerce deliveries into the EU. It is intended to create a level playing field for domestic retailers, while consumer protection organizations warn of rising prices for online orders.

Fuel Price Brake Reduced

Parallel to the VAT cut, the fuel price brake introduced in April will continue in slimmed-down form. The reduction in the mineral oil tax (MÖSt) is being lowered from the previous 1.7 cents per liter to 0.8 cents per liter going forward. As a result, the relief at the pump will also be smaller than in recent months.

NGO Foodwatch Austria had called beforehand for VAT to be cut on all foodstuffs, arguing that the current reduction excludes many products and does not offset the underlying inflation. The version now in force is therefore only a first step, which, however, is not sufficient, it said.

The Finance Ministry says it will closely monitor the effects of the cut and tighten the measure if necessary. An extension to additional product groups is currently not planned. Its effectiveness will also be reviewed regularly by the Parliamentary Budget Office.

Outlook and Next Steps

Overall, the public debate over the tax cut remains mixed. While the coalition parties present the relief as an important step against rising prices, the opposition, economic researchers, and parts of the population see the actual effect as very limited.

The food retail sector has, meanwhile, announced that it will pass on the price reductions to customers quickly and in full. Whether it succeeds will become clear in the coming weeks, once the first purchases are made under the new conditions.