Money For Members

What is Austria planning to do to cushion the rising cost of living?

Amanda Previdelli
Amanda Previdelli - [email protected] • 6 Jun, 2022 Updated Mon 6 Jun 2022 14:40 CEST
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A man wears a face protection mask after he shopped in a supermarket in Brunn am Gebirge near Vienna on April 1, 2020. (Photo by ALEX HALADA / AFP)

As inflation reaches record high levels, the country is trying to reduce its impacts. Here is what you need to know.

Austria has seen its cost of living and consumer prices soaring, driven mainly by increases in fuel and energy prices. Inflation is expected to reach 8 percent for May, as The Local reported.

This represents an increase in consumer prices of 1.1 percent from April's level of inflation and the highest rate in Austria since 1975.

"Life in Austria continues to become noticeably more expensive. In addition to the continuing inflation-determining price increases for fuels and energy products, food also has an additional price-increasing effect," said Statistik Austria Director-General Tobias Thomas.

READ ALSO: 'Serious situation': Inflation in Austria expected to hit 8 percent

As even prices for basic foods and services are increasing, the Austrian government has prepared a series of measures to contain inflation and, perhaps more importantly, to cushion the effects of it on its population.

What is the "inflation package" approved by the government?

Austria's parliament approved a €2-billion package of measures against the rising living costs in the country.

The primary measure is a reduction in natural gas and electricity taxes by the end of June 2023, which is expected to cost €900 million and should cut tax by 90 percent.

READ ALSO: Austria unveils €2 billion relief package to fight the rising cost of living

Additionally, there will be a 50 percent increase in the commuter allowance and an increase in the "commuter euro", which reduces income tax levies by €2 per kilometre distance between the place of residence and workplace. These should cost €400 million.

There were also measures, including one-off €150 payments to the unemployed, pensioners, and low-income households, as The Local reported.

Bonuses and payments

Besides the €150 payment, the federal government has prepared other one-off subsidies or discounts.

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.

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

The bonus would offset some of the costs brought by a new CO2 tax in Austria and can be up to €200 depending on where you live. The payment is automatic and goes to the bank account you have registered with FinanzOnline.

To cushion rising energy prices, Austria also announced a €150 energy voucher, a bonus that can be redeemed online.

READ ALSO: EXPLAINED: How to claim your €150 energy discount in Austria

After redeeming it, which is a relatively straightforward process (the website is in both German and English), consumers receive a credit worth €150 with their energy provider's annual or final invoice.

What can come next?

Despite the package announced back in March, the cost of living continues to rise in Austria, prompting debate and demands from the population.

Austrian media has reported that the federal government is preparing a second inflation package to be presented by mid-June.

It could contain changes to the so-called "cold progression" in the country. There has been debate on abolishing cold progression, which means tax brackets are not adjusted for inflation.

READ ALSO: Will inflation force tax changes in Austria from 2023?

In practice, it can lead to situations where people get their salaries adjusted for inflation, and the increase in earnings bumps them to a higher tax bracket, resulting in higher tax rates. As their wages were adjusted for inflation, they are being taxed more despite not having more actual purchasing power.

Another change that may be announced in the coming weeks is a suspension of a CO2 tax which was planned as part of tax reform and green policies.

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Amanda Previdelli 2022/06/06 14:40

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