The president of Munich's Ifo Institute has called for abolishing Germany's reduced seven percent value-added tax in favor of a uniform 19 percent rate on all goods, a move that would generate more than 36 billion euros annually in additional state revenue after compensation payments.
Clemens Fuest acknowledged that prices on reduced-rate items, particularly food, could rise by up to 12 percent if retailers pass the increase fully to consumers. To shield lower-income households, he proposed an annual state credit of 360 euros, arguing the burden would fall mainly on the wealthier half of the population earning above roughly 55,000 euros gross. The reduced rate currently costs the state 43.5 billion euros a year, with the compensation scheme estimated at 7.2 billion euros.
The proposal drew criticism from Social Democratic Party secretary-general Tim Klüssendorf. Germany currently ranks among the five EU countries with the lowest VAT rates; only Denmark applies a single uniform rate of 25 percent across all goods.