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Germany leads opposition to EU sales tax cuts

EU finance ministers clashed Saturday on whether to shake up European sales tax rules to allow reduced rates for targeted services and products, with Germany a vocal opponent to any cuts.

Published: 13 September 2008 14:53 CEST

Germany leads opposition to EU sales tax cuts

Photo: DPA

The European Union has long debated the merits of allowing such reduced value added tax rates, but efforts to change existing rules have stalled in the face of resistance, mainly from Germany but also from Austria and Denmark.

“It’s difficult” to overcome the differences, said Belgian Finance Minister Didier Reynders as he arrived for a meeting with his EU counterparts in the southern French city of Nice.

“But I’m sure that it is important (to reduce rates) because there are some sectors with a very important capacity to give more jobs to the people, like in the restaurants. Why not reduce rates?” he added.

“We have expressed a certain degree of scepticism,” said Austrian Finance Minister Wilhelm Molterer said. “We have doubts that consumers get the benefits of the tax cuts.”

Currently, EU governments can only temporarily apply a reduced VAT rate as low as 5 percent on products or services from a list under strict rules. Normally EU countries cannot apply a VAT rate of less than 15 percent in order to avoid big price discrepancies across what is supposed to be a common market.

Much to Berlin’s discontent, the European Commission weighed into the debate about VAT in July by proposing to make it easier to apply reduced rates in a greater number of labour-intensive or locally supplied services than currently allowed.

Changing EU tax rules requires the unanimous support of all 27 EU member states.

During the debate in Nice, German Finance Minister Peer Steinbrueck said there were still too many open questions about the merits of targeted reduced rates to expand it to more services and products, according to one official.

Why buying property in Austria remains unaffordable for most

Many people living in Austria dream of one day owning a home, but despite recent drops in property prices and interest rates, this dream is still out of reach for many average earners.

In Austria, it is recommended to not spend more than 40 percent of a monthly income on debt repayment.

But new analysis by tariff comparison portal durchblicker.at reveals that even a double-income household would need to spend around 60 percent of their income to afford a 90m² new-build apartment in Vienna.

While the government has created initiatives to improve the affordability, with attractive housing packages, fee reductions and eliminations of certain fees, such as the “Grundbucheintragsgebühr” (land register entry fee) and “Pfandrechtseintragungsgebühr” (mortgage registration fee) for properties up to a certain value, their impact has been limited.

Furthermore, the governments initiatives often overlook the specific needs of lower-income households and may benefit those who are already financially stable, leaving the average earner still struggling to afford a home, according to Der Standard.

READ ALSO: ‘Haushaltsversicherung’ – How does Austria’s home insurance work?

High prices, rates and strict lending criteria

One of the biggest barriers to owning a home in Austria is simply the sky-high property prices. Over the years, property prices have increased, making it more difficult for people with an average income to afford a place of their own. Even with recent minor dips in prices, they still remain high.

Another factor making owning a home challenging is the increase in interest rates in recent years. As a result, both existing variable-rate loans and newly obtained fixed-rate loans have become more expensive. Analysts expect the European Central Bank to cut interest rates by around 0.5 percent in the near future, but according to durchblicker’s calculations, this would initially only create a little relief for loan takers, where instead of around 60 percent, 55 percent of monthly household net income would be needed for debt repayment.

Another issue preventing many from realising their dream to buy a home is the difficulty in obtaining a mortgage. Since July 2022, stricter rules have applied in Austria for the granting of property loans. Loan applicants must have a deposit worth at least 20 percent of the value of their property to be granted a loan, according to the financial online platform Finanz.at. This means that even applicants with higher incomes may struggle to get their dream financed.

Furthermore, many loan takers with variable-rate loans, especially those recently obtained, are facing significant challenges. The variable interest rates have increased significantly since the initiation of these loans, resulting in higher monthly repayments, reported Der Standard.

Few people can afford their own home in Austria, especially in Vienna. Photo by Christian Lendl on Unsplash

Experts suggests fixed rate loans and cooperative housing models

Andreas Ederer, Head of Banking at durchblicker.at, recommends loan takers with variable-rate loans to change to fixed-rate loans. He suggests that fixed-rate loans have become more attractive as they are currently cheaper than variable-rate loans, reported Kurier.

Unlike fixed-rate loans, which have a steady interest rate throughout the loan term, variable-rate loans can change over time in response to shifts in market conditions or the economy.

Experts also suggest alternative models for increasing affordability. One idea is to create more opportunities for cooperative ownership with mandatory purchase options. This could offer a more affordable option where costs such as maintenance and taxes are shared. According to Der Standard, cooperatives also often have access to loans with better terms.

READ NEXT: How can I move into affordable cooperative housing in Vienna?

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