One of Austria’s reforms that has been postponed forever is the abolition of the “cold progression”. Year after year, finance ministers and governments re-announce it for some time, but never carry it out. In the 2019 National Council election, all parties voted for their elimination. That would be doubly desirable in times of increased inflation.
The “cold progression” is a nuisance that has extremely unjust consequences for workers. It arises when the tax brackets of a progressive taxation are not adjusted to inflation. The result: There is a constant additional tax burden for the employees because it slips into a higher tax bracket, although they do not earn any more in real terms. You pay more tax than you should when adjusted for inflation.
The annually repeated excuses of politics for the postponement of the abolition of this injustice remind a little of the film: “And daily the groundhog greets”. The right moment to put an end to the “cold progression” appears to never come for the finance minister. In the end, all governments prefer to earn more from wage taxes.
The new finance minister, Magnus Brunner (ÖVP) recently justified the delay to the “press” as follows: Although the abolition is still the goal. But “you also have to consider whether you want to set priorities in tax policy.” The Vienna think tank Agenda Austria cannot take much from this justification. This is “highly original” because, according to the agenda, there would be sufficient tax policy leeway even without this “inflation tax”.
Even assuming that the state had already abolished the cold progression in 2016, 27.7 billion euros would have gushed into the coffers through wage tax income in this year of the crisis. In fact, the income from wage tax will be 28.1 billion euros, the cold progression will amount to almost half a billion euros this year alone. By 2024, income from wage tax is expected to be 6.4 billion euros higher – that’s an increase of 23 percent.
“It is not a good start for the new finance minister if he thinks that he cannot set any tax policy accents without the money, which should not actually end up with the state,” says Agenda Austria director Franz Schellhorn.