German labour tax cuts call from OECD hint at VAT rate increase

Sat 17th May 2014

The latest report by the Organisation for Economic Co-operation and Development (OECD) on Germany’s economy point out that labour taxes remain too high, and that it needs to look at other revenue sources

German VAT increase to 19% to cut labour taxes

The OECD’s survey of the German economy has highlighted that Germany is still excessively reliant on labour taxes compared to other European competitors.  This could hamper its ability to sustain its recent economic strength in the medium to long term. In particular, there is a distorted burden on lower-paid staff.

Germany’s VAT rate is 19%, which is significantly below the EU average of over 21%. Germany last raised its standard VAT rate in 2007 when it increased from 16% to 19%. That was mainly to fund a cut to the employer taxes, but also to help meet the Euro currency deficit requirement of 3% of GDP.

The problem of tax revenues will increase as new pension liabilities kick-in this year and 2015.