Overview
- On Thursday Ifo president Clemens Fuest publicly proposed removing the reduced 7 percent VAT and applying a uniform 19 percent rate to all goods and services.
- Fuest estimates the reduced-rate regime costs the state €43.5 billion a year and says his plan, after targeted compensations, would leave roughly €36 billion extra for the treasury.
- He proposes a targeted annual transfer of €360 for low‑income households to offset higher prices, but independent DIW modelling finds a four‑person low‑income family could still face about €45–67 extra per month if businesses pass the tax on.
- The change would make items now taxed at 7 percent—basic food, local public transport tickets and many cultural services—more expensive and would force retailers and transport firms to decide how much of the tax to absorb.
- The idea met swift political resistance, with SPD secretary Tim Klüssendorf rejecting it, and remains an expert proposal in public debate rather than government policy, leaving its adoption uncertain and administratively complex.