2026-06-22
Economist Bert Rürup has called on Germany’s government to raise the standard value-added tax to 22% from 19% while cutting the reduced rate to 5% from 7%, arguing that the change could generate €40 billion to finance income and corporate tax cuts without adding new debt.
Rürup, a former government adviser, made the proposal as Chancellor Friedrich Merz’s administration faces pressure over Germany’s medium-term fiscal outlook. He said the federal government’s financial planning points to rapidly rising public debt by the end of the legislative term and warned against debt-funded stimulus programs.
According to Rürup, higher consumption taxes paired with lower taxes on wages and business profits would shift the burden away from income and toward spending. His argument is that workers would keep more of their paychecks while companies would face lower tax costs, supporting investment and growth.
He said Germany had used a similar approach before, pointing to the increase in VAT to 19% from 16% in 2005 under Angela Merkel and Franz Müntefering. In his view, that move helped lay the groundwork for a decade of stronger public finances and a balanced federal budget.
The proposal would have uneven effects across households. A lower reduced VAT rate could ease pressure on some essential purchases, including many food items, while the higher standard rate would make a broad range of other goods and services more expensive. Whether consumers would be fully compensated by lower income taxes would depend on how any broader tax package is designed and implemented.
For the drinks sector, any increase in Germany’s standard VAT rate could raise shelf prices for alcoholic beverages sold in retail and add pressure on menu pricing in bars and restaurants if businesses pass on higher tax costs. That could affect demand patterns and margins across beer, wine and spirits, especially if producers and hospitality operators are already dealing with weak consumer spending.
Rürup framed the plan as an alternative to borrowing, saying Germany needs structural reform rather than another round of credit-financed economic support. The political challenge is likely to be steep. Raising VAT has long been seen as one of the most unpopular tax options in German politics, even when paired with promises of relief elsewhere.
It remains unclear whether Merz’s government will take up the idea. Rürup’s proposal sets out a fiscal trade-off: higher taxes at the cash register in exchange for lower taxes on earnings and profits, with the stated goal of avoiding a deeper debt burden while trying to revive growth.