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Will inflation force tax changes in Austria from 2023?

There is a possibility that Austria’s so-called cold progression - which means tax brackets are not adjusted for inflation - could be abolished by next year.

A customer with a €5 note. Products are getting pricier in Germany.
Austria's progressive tax system could be in for a shake up. Photo: picture alliance/dpa | Moritz Frankenberg

Austria’s Finance Minister Magnus Brunner has told journalists that an abolition of the cold progression tax system could be a possibility as soon as 2023, and that a working group has been set up to look into it.

This is a surprise development for many as Brunner has previously stated his opposition to the plan, which was already part of the government’s programme.

A report by Die Presse says Brunner has previously voiced concerns that getting rid of cold progression would primarily benefit higher earners.

The reason why Brunner is now considering an end to cold progression is reportedly due to rising inflation in Austria, which is currently at almost 7 percent. The annual average rate of inflation is expected to be 6 percent.

FOR MEMBERS: EXPLAINED: What can I deduct from my tax bill in Austria?

According to the Kronen Zeitung, experts have long called for payroll tax levels to be automatically adjusted with inflation.

Austria’s deficit is also expected to rise to 3 percent this year rather than 2.3 percent as previously anticipated. The debt ratio will not fall below 80 percent of gross domestic product (GDP) as planned for this year.

The budget planning is affected by high energy prices and the war in Ukraine, and Brunner does not expect there to be a balanced budget in Austria until 2026.

What is cold progression?

Cold progression is a tax term used to describe an increased tax burden. It happens when progressive tax brackets (which is Austria’s income tax system) are not adjusted in line with inflation and disposable income gradually decreases. 

Cold progression has also been referred to as a “hidden tax” because even though incomes rise, people’s purchasing power does not as prices continue to rise. However, at the same time, the government collects more money in tax as more people enter a higher tax bracket.

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MONEY

EXPLAINED: Everything you need to know about Austria’s climate bonus payment

Residents in Austria will receive up to €200 to compensate for the increase in energy and fuel prices created by the eco-social tax reform. Here's what you need to know.

EXPLAINED: Everything you need to know about Austria's climate bonus payment

The climate bonus, or Klimabonus in German, is an essential part of Austria’s eco-tax reform, a larger project with several measures to incentivise environmental choices such as riding the public transport.

The bonus would offset some of the costs brought by a new CO2 tax in Austria.

READ ALSO: Austrian government unveils ‘eco’ tax reform

“With the Klimabonus, we ensure that climate-friendly behaviour is rewarded and the people in our country are relieved. If you take good care of the climate, you pay less CO2 tax and end up having more of this money left”, Climate Minister Leonore Gewessler (Greens) said on Twitter.

The Austrian government plans to set up a web site with more information on the bonus in June. Until then, here is what you need to know about the new compensation and how to get it.

Who is entitled to the payment?

Anyone who has had their primary residence in Austria for at least 183 days will be entitled to the bonus. Children are also entitled, but if they are younger than 18 years old, they will receive 50 per cent of the respective amount of the climate bonus.

READ ALSO: EXPLAINED: How to get your €500 Kurzarbeit bonus in Austria

“This is the first time that all people, regardless of age, place of residence, regardless of employment or pension or training status, have received a federal payment,” said Gewessler on Friday in the Ö1 broadcast.

What is this ‘respective amount’?

Not everyone will receive the same amount of money. The value changes depending on where the recipient lives and what is the offer of public transport there. Viennese, then, will receive the lowest amount of money: a one-off € 100 payment.

READ ALSO: EXPLAINED: How to claim your €200 voucher for electronics repair in Austria

There are four levels of payment depending on the municipality: €100 for urban centres with the highest-ranking development (which is only Vienna), €233 for urban centres with good development of public transport, €167 in centres and surrounding areas with good basic development of the public system, and € 200 for rural municipalities.

If you live in Austria’s second-largest city, Graz, you fall into the second category and should expect a €133 bonus.

Some exceptions to the geographical rule apply, so people with disabilities who cannot use public transport will receive the total climate bonus (€200) regardless of where they live.

The Federal Government had already stated it estimated that a third of Austria’s population would receive the highest bonus.

How to get the bonus?

The payment is pretty straightforward; there is no need to apply for it, and it will be done directly into your bank account, just make sure that you have it up to date on the FinanzOnline website – the final date to do so is June 30th.

Those who receive a pension and other benefits will receive the bonus in that same bank account.

READ ALSO: EXPLAINED: How freelancers in Austria can pay four times less in social insurance

It is worth mentioning that the bank account doesn’t necessarily need to be from an Austrian bank.

People who don’t have a registered bank account will receive a letter with a voucher that can be redeemed in shops or exchanged for cash at a bank, Gewessler said.

According to the Ministry, payments should start at the beginning of October, and those receiving a transfer will not have to wait for long to see the money in their bank accounts. However, people receiving letters with the vouchers could have to wait a few weeks.

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