Austria slashes VAT on groceries to ease household budgets from July 1
A cut in value-added tax (VAT) on basic groceries will take effect in Austria from July 1. Parliament approved the reduction, lowering the rate from 10% to 4.9% on everyday essentials like milk, butter, eggs, apples and bread. The move aims to ease pressure on household budgets amid ongoing economic challenges. Martin Kocher, governor of the Austrian National Bank (OeNB), described the VAT cut as having a 'mildly positive' effect on inflation. He acknowledged that consumers would notice a 'slight difference' in prices at the checkout. However, other policies, such as an increase in the baking ingredient tax and higher administrative fees, are 'working in the opposite direction' to the tax reduction.
Inflation currently averages 'around 3% for the year,' though Kocher warned it could climb further. The OeNB chief projected rates between 'just over 3% to nearly 4%' in the coming months, particularly if tensions in the Middle East and the Strait of Hormuz blockade persist. Despite these risks, Kocher described the economy as 'still relatively resilient,' though he did not rule out the possibility of stagnation. The European Central Bank (ECB) continues to target 2% inflation over the medium term as its benchmark for price stability. Kocher’s remarks come as policymakers balance measures to support households while managing broader economic pressures.
The VAT reduction on essential food items will apply from next month. While the change may offer some relief, its impact on inflation remains limited. Other economic factors, including geopolitical tensions and domestic tax adjustments, could still push prices higher in the near future.
