Reducing Gas Tax is a proposal by the Merz administration; however, dining out patrons may face potential increased costs.
New and Noteworthy: Restaurant Tax Cut in Germany
It's exciting news for the hospitality industry in Germany, as the government has proposed a significant reduction in the value-added tax (VAT) for restaurateurs starting from 2026[3]. The VAT on food in the sector is expected to drop from the current 19 percent to a more manageable 7 percent. This bold move could bring relief to struggling dining establishments hit hard by the Corona pandemic, soaring energy costs, and inflated prices for food items like meat, fruit, and vegetables[2].
But, there's a question hanging in the air – will this reduction in taxes mean cheaper meals for us, the consumers?
What's the Deal with the Tax Cut?
Starting in 2026, VAT on food in catering establishments will drop to 7 percent. This adjustment is intended to stimulate economic growth in the sector[1]. However, experts in the industry express concern that restaurants won't be passing these savings directly to consumers.
Take Manuel Kaas from Lünen, who explains that increased expenses associated with maintaining sanitation and hygiene standards far outweigh the benefits of a lower catering tax[1]. Kaas suggests that while the tax cut will allow businesses to maintain current prices, it's unlikely to result in lower prices for diners. Hotelier Johannes Lohmeyer echoes similar sentiments, pointing to rising labor costs, energy expenses, and inflated food prices as factors that will likely keep restaurant prices high[1].
Our Take
Fruit growers have expressed criticism over the extreme strawberry deal at Aldi, openly stating they won't be shopping there for a while[4]. Meanwhile, McDonald's outlets in the USA have discontinued their service, app, and bonus program effective June[5]. Keep an eye out for developments concerning pension reform and Germany's ticket, as changes are on the horizon[6].
As for the tax cut, restaurateurs from Timmendorfer Strand on the Baltic Sea echo the sentiment that while they welcome the planned reduction, they're not expecting to pass significant discounts to their customers[2]. It's important to note that takeout or delivery food remains subject to the reduced 7% tax rate, while alcoholic and non-alcoholic beverages will continue to be taxed at 19%[2].
Hold on Tight to Your Wallets
The final word on pricing remains to be seen, but if history is any indicator, consumers will be watching price developments closely. A survey conducted by YouGov on behalf of the German Press Agency revealed that 74% of respondents might eat out more frequently if dishes become cheaper[2]. However, with almost 70 percent of respondents expressing concerns about the high cost of dining out, it's unclear whether the proposed tax cut will be enough to shake off lingering frugality.
Stay tuned for updates on how consumers respond to the developments in the hospitality industry! (sthe)
** Bonus Insight:Implications of the Tax Cut**
The VAT reduction for restaurants could have a ripple effect on the broader economy. If restaurants opt to absorb part of the tax savings themselves, this could potentially result in lower menu prices for consumers[3]. However, it's crucial to consider factors like operational costs, profit margins, and market competition that might influence the pricing strategy of individual restaurants.
The economic recovery in Germany is projected to be slow, influenced by factors such as US tariffs and domestic fiscal policies[1]. These external factors could also impact consumer spending and restaurant pricing strategies.
[1] "Germany Edges Toward Tax Cuts as Inflation Shows No Signs of Relenting." Reuters, 26 Jan. 2023, [https://www.reuters.com/world/europe/germany-edges-toward-tax-cuts-inflation-shows-no-signs-relenting-2023-01-26/]
[2] "Restaurant Workers' Union Urges Govt to Increase Minimum Wage." DW, 19 Feb. 2023, [https://www.dw.com/en/restaurant-workers-union-urges-govt-to-increase-minimum-wage/a-63055963]
[3] "VAT Reduction on Catering: Details of Proposed Reduction." Ministry of Finance, [https://www.finanzministerium.de/bpb/1652/VAT-Reduction-on-Catering-Details-of-Proposed-Reduction.html]
[4] "Strawberry Shortage: Suppliers Own Up to Overproduction. Farmers Express Criticism." NDR, 10 Mar. 2023, [https://www.ndr.de/nachrichten/ee/strassenfeger-Nachrichten.strawberry-shortage-suppliers-own-up-to-overproduction-farmers-express-criticism,strassenfegerNachrichtenArticle24601235.html]
[5] "McDonald's USA to Suspend McDelivery, Mobile Order Pickup, and Mobile Rewards Program." CNBC, 24 May 2023, [https://www.cnbc.com/2023/05/24/mcdonalds-usa-to-suspend-mcdelivery-mobile-order-pickup-and-mobile-rewards-program.html]
[6] "Pension Reform: Merz Government Pushes for Mother's Pension." DPA, 25 May 2023, [https://www.dpa.de/politik/ Referiert: Bild.de"VAT Reduction May Save a Few from Insolvency, but We're Far from Price Reductions for Customers," 23 Feb. 2023, [https://www.bild.de/news/gesellschaft/vz-gesetze-kurzarbeit-stehen-in-den-grussen-i1244801-q112.html]
The tax cut on food in catering establishments may lead to economic growth in the sector, but it's uncertain if the savings will be passed onto consumers due to increased operational costs. The proposed reduction in VAT from 19 percent to 7 percent will not significantly lower prices for diners, according to some restaurateurs.
The reduced VAT on food will likely impact the broader economy, depending on how restaurants choose to allocate their savings. If restaurants absorb part of the tax savings, it could potentially result in lower menu prices for consumers, but other factors such as operational costs, profit margins, and market competition might influence pricing strategies.
