Austria

Austria Cuts VAT on Essential Goods to 5% From 2026

February 1, 2026

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Austrian Chancellor Christian Stocker announced measures that the government plans to implement to combat inflation, strengthen the economic base, and ease the cost of living for residents. Moreover, the announced measures aim to reduce the pressure of rising prices on households. One of the key measures announced includes the reduction of the VAT rate for essential goods from July 2026.

Reduced VAT Measure for Essential Goods

As Chancellor Stocker emphasized, everyday shopping has become more expensive and often a burden for people. To address this rising and concerning issue, the government plans to cut VAT on a selected basket of essential goods by half, reducing it to 5% from 10 % from July 1, 2026. The goal of reducing the VAT rate on essential goods is to lower consumer prices and make daily necessities more affordable.

To prevent businesses from passing on deductions to shoppers rather than absorbing them, the government will impose stricter penalties for opaque pricing, misleading discounts, and other deceptive commercial practices.

Given that this will reduce the state's revenue from transactions involving these goods, the government intends to implement countermeasures, including a fee on parcels imported from third countries such as China. Additional measures to offset these costs will include a fee on non-recyclable plastic. The combination of a reduced VAT rate on essential goods and the imposition of fees on imported parcels should not only support consumers but also help level the playing field, allowing Austrian retailers to benefit from fairer competition.

Conclusion

The Austrian relief package reflects a balanced attempt to cushion households against inflation while safeguarding public finances and domestic trade. One of the government's primary goals is to reduce the cost of living by lowering VAT on essential goods and preventing businesses from passing on deductions to consumers. Taken all together, the announced measures should, if effectively implemented, provide meaningful short-term relief for consumers while supporting longer-term economic stability.

Source: Austrian Federal Chancellery, Bloomberg

What VAT change has Austria announced for essential goods?

Austria plans to reduce the VAT rate on a selected basket of essential goods from 10% to 5%, with the change taking effect on July 1, 2026.

Why is Austria reducing VAT on essential goods?

The government aims to ease the cost of living, reduce inflationary pressure on households, and make everyday necessities more affordable for residents.

When will the reduced VAT rate come into force?

The reduced VAT rate of 5% on essential goods is scheduled to apply from July 1, 2026.

How will the government ensure consumers benefit from the VAT cut?

Austria plans to introduce stricter penalties for opaque pricing, misleading discounts, and deceptive commercial practices to prevent businesses from failing to pass savings on to consumers.

How will Austria offset the loss of VAT revenue?

To compensate for reduced VAT income, the government intends to introduce a fee on parcels imported from third countries such as China, along with a fee on non-recyclable plastic.

How do these measures support Austrian retailers?

By combining lower VAT on essential goods with fees on imported parcels, the measures aim to level the playing field and promote fairer competition for domestic Austrian retailers.

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