Brief analysis 4: End the additional burden of cold progression

At 42.8% of gross domestic product, the tax burden in Austria is very high by international standards. "Austria is one of the highest tax burdens in Europe. Employees receive too little of the fruits of their labor and companies are deprived of much scope for investment. This limits the competitiveness of the business location," says Tobias Thomas, Director of the economic research institute EcoAustria. The high tax burden is exacerbated every year by cold progression. "With the cold progression, the burden on the labor factor in particular continues to increase. As a result, private households have less scope for consumption year after year," says Thomas.

An analysis by EcoAustria shows that without an adjustment to the income tax rate, the average tax rate would rise from 15.7% today to around 20% within ten years. This would result in a cumulative additional burden on private households of EUR 66.3 billion (scenario 1). If the rate adjustment takes place when an inflation limit of 5% is exceeded, the average tax rate will increase more moderately. However, the cumulative additional burden on private households would still rise sharply to EUR 23.8 billion over ten years (scenario 2). Even if the tax rate is adjusted annually based on consumer prices, the additional burden on private households increases due to productivity-related wage increases. This increase amounts to just under EUR 15 billion cumulatively over ten years (scenario 3).

"Regardless of who wins the National Council elections, it would be good for citizens if cold progression were to be ended completely after the elections. This can be achieved if the income tax rate, exemptions and deductions are automatically adjusted annually to the average wage development," explains Thomas. Many countries, such as Belgium, the Netherlands, Canada, Switzerland and the United States, already have regulations for adjusting tax rates. In Denmark, Norway and Sweden, this is done on the basis of average wage development. "Indexing the tax rate is also a signal in international competition, in which locations not only compete to attract companies, but also to attract skilled workers in particular," says Thomas.