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Kone more two weeks, then all consumers will receive the biggest tax hike in 14 years. The regular VAT rate will be increased from 16 percent to 19 percent on January 1, the rate reduced from five to seven percent, the same as in early 2007.
Back then, too, the Chancellor’s name was Angela Merkel (CDU), and the SPD also provided the Federal Minister of Finance at the time.
But that’s enough of the parallels. Unlike 2007, this increase does not take the country into entirely new fiscal regions. Instead, after six months at a lower level, the tax status that was in effect until June 30, 2020 will be restored.
With the provisional reduction, Merkel and her finance minister, Olaf Scholz, wanted to tempt the Germans to consume, in order to support trade and thus the entire economy. To do this, they were willing to give up 20 billion euros in tax revenue.
The judgment of the trade is clear
It was probably a 20 billion euro mistake. This can be seen at the latest now that prices are rising again. The judgment of the office is clear.
“Overall, the tax cut was unable to do anything against the negative effects of the pandemic on consumption and has so far only had a marginal effect,” says Stefan Genth, General Manager of the German Trade Association (HDE), WELT AM SONNTAG. For most companies, the effort was significantly greater than the benefit.
At the Rossmann drugstore chain, the general price cut desired by politicians was independently revised upwards months ago. “We withdrew the three percent discount in the last week of September, without our clients noticing,” he says from there.
It is not a problem to remove something that nobody notices. In the last three months, for example, the VAT reduction did not kill customers, but the company’s cash register.
Even in the fashion trade, which is particularly affected by crown restrictions, the verdict is clear: “No effect at all,” is the brief conclusion of the fashion and lifestyle company Breuninger, which is represented in many large cities.
There were only more sales for expensive products
At most, an effect could be observed on the trade of high-priced goods, such as furniture. “Orders received have increased significantly since July, especially for high-quality kitchens, upholstered furniture and home furnishings,” says Jan Kurth, CEO of the Association of the German Furniture Industry (VDM).
If a major purchase was planned for the near future anyway, now it has been advanced. At a price of several thousand euros, you definitely notice a tax cut of three percentage points.
But even for many economists, this does not justify a $ 20 billion program. In its annual report, the Council of Economic Experts with the federal government’s top economic advisers also criticized the low level of precision of the tax cut target: “The effect on the economy should remain limited,” he says.
Households with higher incomes reacted more strongly to the measure, but this had large deadweight effects. In other words, high-income customers would have bought the new kitchen or the new car anyway.
However, Finance Minister Scholz tirelessly defends the costly cut: “We have made an offer to make major purchases despite the crisis. That worked “. And when asked, his ministry added that it was about “initiating a considerable economic stimulus in a timely manner.”
This objective has been achieved. But even the folks at Scholz dare not claim that the strong 8.5 percent economic growth in the third quarter would not have happened without the VAT reduction.
“The scope of the price increases will be limited”
The harsh blockade and the already difficult trade situation could ensure that the VAT reduction does not turn into a debacle.
In normal times, the step back is risky. Scientific studies from other countries show that sales tax increases pass through to customers twice as much as temporary reductions.
“In view of the high competitive pressure, the scope of the price increases will be extremely limited,” says HDE chief Genth. In terms of fashion and footwear, there is even an unprecedented price drop.
“If the stores are allowed to reopen, there will be a huge wave of discounts,” says Axel Augustin, spokesman for the textile trade association. The industry is based on a huge mountain of unsold products, we are talking about 300 million pieces.
Anyone with a strong online business can act more freely. “We will take into account the VAT applicable from January 1, 2021 in our prices,” says the electronics store chain MediaMarktSaturn.
Whether consumers really notice this in light of dynamic prices, which can change several times a day, is an open question.
Mail order company Otto also notes that the VAT rate is just one component of many in prices. In the coming months there will always be extensive special offers.
It gets exciting in the grocery trade. Aldi wants to go back to the previous level, the same applies to the Rewe Group with the Rewe and Penny stores.
But it is also clear: if you leave the prices as they are now from January, the price game changes suddenly. At the Schwarz Group, with Lidl and Kaufland, he is not looking in their direction: “We will continue to offer our customers an attractive price-performance ratio in the future.” That could mean a lot.
This text is from WELT AM SONNTAG. We will be happy to take them home with you on a regular basis.
