Freitag, 12. Juni 2009

Germany's VAT to rise to 25 %?

Somewhat belatedly, I just picked up that numerous economists have suggested to raise German VAT (Mehrwertsteuer) from 19 % to 25 % in 2011, i.e. less than two years from now. Apparently, the idea is to make Germans go out and buy stuff before everything becomes a lot more expensive.

That's a pretty bizarre proposal, I'd say:

- For a start, it means making services even more expensive. Why go out to a restaurant if you can cook yourself at home without having to pay any VAT?

- It also means that shopping trips to places like Salzburg and Strasbourg (or week-end excursions to Paris and Milan) become even more attractive compared to Rosenheim and Freiburg. It's bad enough already that people fill their tanks abroad whenever they are close to the border.

- More generally, an increase in VAT is a one-time wealth tax (assuming that wealth is acquired for the purpose of being consumed eventually), but not only imposed on the wealthy, but on everybody who has any savings intended for future domestic consumption. In particular, it hits the elderly hard, because surely there will be no corresponding increase in pensions, and their savings will also be devalued.

- Reasonably well-off pensioners have a way out, though: They can take their money and emigrate to Mallorca or the Canary Islands.

Sure, the proposal discourages savings, and that's in principle good when the economy is in a "savings glut". But it seems to me that the side effects of such an extreme measure are way too big.

In any case, I'm pretty sure that no such VAT increase will happen anytime soon. It would be political suicide for any politician who pushes it through...


  1. Zimmermann says 25 % is no big deal, because the Scandinavians already pay a similar rate.

    Great! He picks the place with the highest VAT rate worldwide and suggests we have to imitate them...

  2. It's not so bad if health insurance and pension insurance payments are lowered as compensation.

  3. So you're suggesting to switch health-insurance from "contribution-based" to "tax-financed", and to pay for it via a higher VAT? (though a 6 % increase in the standard VAT rate would presumably only finance a very small portion of health insurance spending)

  4. "would be political suicide for any politician who pushes it through... "

    I'm not so sure about that. Before the last general elections SPD and CDU proposed VATs of 16% and 18%, respectively. After their coalition they compromised on 19%. Yet, this election "fraud" is no topic in the ongoing elections campaigns. Germans (like everyone else) tend to forget very quick.

  5. You're right. An increase from 19 % to 25 % is twice as big as what they did last time, though. Hmmm. Maybe they'll do a real compromise this time, and settle for 22 %...

    One of the things I find totally ridiculous is the arbitrary split between the "reduced rate" of 7 % (which never got increased) and the full rate. If another VAT increase is really on the cards, then we can expect lots of haggling on exceptions and reclassifications.