Economic impact of the abolition of cold progression

In an analysis commissioned by the Federal Ministry of Finance, the economic research institute EcoAustria examined the macroeconomic effects of the complete abolition of tax progression.

With the legislative proposal to abolish cold progression, the Austrian federal government wants to adjust the tax rate to the inflation rate in light of the current situation and thus counteract the effect of reducing real disposable income. This will be implemented through two complementary measures. Firstly, an automatic adjustment is to be made for two thirds of the calculated inflation rate. This adjustment covers the threshold amounts for the application of tax rates (with the exception of the highest tax rate) as well as a number of deductible amounts. Secondly, the legislator is to take discretionary measures for the remaining third, which will also primarily provide relief for people affected by the effects of cold progression.

This brief study analyzes the economic effects of abolishing the cold progression in Austria in four variants.