Berlin Germany’s top consumer advocate is critical of the temporary VAT cut planned in the federal government’s stimulus package. “As nice as the 20 billion euro VAT reduction read on paper: I do not expect any noticeable relief for everyone through this measure alone,” said Klaus Müller, head of the Federation of German Consumer Organizations (VZBV) to the Handelsblatt. “Restaurant and hotel associations as well as individual companies have already announced that they will not pass on the reductions to consumers at all or not in a linear fashion.”
Non-linear means: The reduced tax rate is not applied to all products. Butter can then become significantly cheaper for consumers, but the price of milk and cheese remains unchanged. In the case of high-priced expenditures such as furniture or cars, consumer protection groups expect the reduced VAT to be passed on.
The temporary reduction in sales tax rates is to apply from July 1 to December 31, 2020. The tax rate is to be reduced from 19 to 16 percent during this period, and the reduced tax rate from seven to five percent. The VAT reduction is part of the so-called second Corona Tax Assistance Act, which is the subject of a public hearing by the Bundestag Finance Committee this Monday.
In a written statement to the hearing available to the Handelsblatt, the VZBV estimates that the VAT reduction will only lead to a partial relief on the demand side. At the same time, the association fears that companies in many industries could use the measure as “financial relief”, even though there are already direct financial support packages from the federal government. But that was “not appropriate and not politically intended”.
In addition, from the point of view of consumer advocates, a reduction in VAT is associated with a “high level of bureaucratic effort” on the company side, especially since the reduction should only apply for six months. The suggestion to label the prices of the items with the previous price and to deduct the VAT only at the checkout was pragmatic, but without an adjustment to the pricing regulation “burdened with legal question marks”.
“Trust will wane”
In its statement, the VZBV makes no secret of the fact that it would have made more sense to use the funds earmarked for the tax reduction “in such a way that consumers are actually relieved and not politics and consumers on the goodwill of companies are instructed “. As an alternative, association leader Müller proposes a greater reduction in the levy under the Renewable Energy Sources Act (EEG) and thus lower electricity prices.
The black-red coalition recently decided to relieve citizens and companies of the corona crisis in terms of electricity costs. To this end, the EEG surcharge is to be reduced from 2021 through grants from the federal budget.
However, Müller points out that the current allocation of 6.5 cents per kilowatt hour is not sufficient for consumers to feel it in their wallets. An average household will save about ten euros in electricity costs next year, the VZBV boss calculates. “An economic stimulus will not be expected.”
From Müller’s point of view, the 20 billion euros earmarked for the VAT reduction would therefore be better invested in a “significantly stronger” reduction in the EEG surcharge. “Supplemented with a children’s bonus of 600 instead of 300 euros, this would be more effective and also more socially just.”
A special session is planned for June 29 so that the Bundestag can pass the six-month reduction in VAT and a child bonus of EUR 300. Immediately after the decision of the Bundestag, the Federal Council should also give the green light in another special session so that the VAT reduction can take effect on July 1, as planned.
Consumer advocates do not believe, however, that citizens will view the Federal Government’s crisis policy more positively in view of the measures. On the contrary. “Confidence will fade that consumers’ interests will also be taken into account if the reduction in VAT does not completely relieve the burden, as promised.”
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