Top Ifo economist Lars Feld backs Clemens Fuest’s call to abolish reduced VAT rates, reigniting German tax reform debate
Executive summary: Lars Feld, president of the Ifo Institute, endorsed Clemens Fuest’s Handelsblatt guest article advocating the abolition of Germany’s reduced VAT rates in favor of a uniform 19% rate. The proposal would overhaul Germany’s tax structure, affecting consumer prices for essentials and business compliance costs, while signaling a shift toward efficiency-driven fiscal reform.
Who is involved: Lars Feld (Ifo Institute), Clemens Fuest (economist and Handelsblatt contributor), German policymakers, consumers, and retail sectors.
Likely next: Parliamentary hearings on VAT reform may resume in Q4 2026, with industry lobbies expected to oppose the change and think tanks to model distributional impacts.
Lars Feld, president of the Munich-based Ifo Institute, has publicly endorsed Clemens Fuest’s proposal to eliminate Germany’s reduced VAT rates, arguing for a uniform 19% tax on all goods and services. The move would simplify the tax system but could increase costs for essentials like food, books, and public transport. Feld’s support amplifies a growing chorus among German economists advocating for fiscal efficiency over social targeting in taxation. The debate reflects broader tensions between economic simplification and equity in tax policy.
What's next — scenarios
Status Quo: Incrementalism and Political Gridlock (55%)
Tax complexity remains high, preserving administrative costs but avoiding immediate inflationary spikes in basic goods.
- Continued coalition disagreement over social equity
- Stable VAT rates in upcoming federal budget negotiations
Simplified Reform: Rapid Unification (25%)
Significant margin compression for food and essential services retailers due to sudden price adjustments.
- Broad consensus within the FDP/SPD coalition
- Legislative passage of a unified VAT schedule
Social Backlash: Policy Reversal (20%)
Political volatility increases as consumer inflation on essentials triggers protests or populist support.
- Spike in consumer price index for food
- Widespread public demonstrations against VAT hikes
What to watch
- German Federal Ministry of Finance policy statements (next 60 days)
- Consumer Price Index (CPI) breakdown for food and services (next 30 days)
- Bundestag budgetary committee meeting minutes (next 90 days)
Timeline
- — Lars Felds Ordnungsruf: 19 Prozent auf alles? Warum der Münchener Ifo-Chef missverstanden wird (Handelsblatt)
Analysis — what this means
Likely next events
- Bundestag finance committee to hold expert hearing on VAT reform by November 2026
- Ifo Institute to release VAT distributional impact study by October 2026
- German Retail Federation (HDE) to oppose uniform VAT in position paper by September 2026
Sectors affected
- Food retail
- Public transportation
- Book publishing
- Cultural services
Regulatory implications
- Amendment to German VAT Act (UStG) §§ 12, 13 required to eliminate reduced rates
- Federal Ministry of Finance to draft reform proposal by Q1 2027
- EU VAT Directive compliance review needed if Germany deviates from standard reduced rates
Historical parallels
- Germany’s 2007 VAT increase from 16% to 19% sparked inflation concerns and retail sector pushback
- France’s 2014 temporary reduced VAT on restaurants (5.5%) reversed in 2015 due to limited job creation
- UK’s 2008–2010 VAT reduction to 15% during financial crisis later reversed