The economic stimulus package of the Federal Government included, among others, the temporary reduction of the VAT rates from 19% to 16% and from 7% to 5%. The reduced rates applied from 1 July to 31 December 2020.
A growing number of households used the VAT reduction for consumption purposes
In August 2020 nearly one household out of seven in Germany (15%) brought major purchases forward or intended to do so because of the temporary VAT reduction. This figure rose to one household in five (20%) in December 2020. The temporary VAT reduction also provided a further incentive to make unplanned purchases. In August 2020, the VAT cut was an additional incentive for 13% of households. Their percentage rose to 16% until December 2020. In all, one household out of five (20%) brought major purchased forward or made additional purchases in August 2020 because of the VAT reduction. That percentage rose to 25% until December 2020. This means that the number of households which brought forward or made additional purchases to profit from the VAT cut increased over time.
Explanation of the diagram: Question „Will you bring planned major purchases forward because of the temporary VAT reduction or have you brought such purchases forward already?“
Especially households with children and higher-income households took the chance to profit from the VAT cut
The effect of the VAT reduction was particularly noticeable in households with at least one child under 18 years. In August 2020, one household in four (25%) with at least one child under the age of 18 brought major purchases forward or planned to do so because of the VAT reduction. That percentage increased slightly to 29% until December 2020. This applied to one out of eight households without children (12%) in August 2020. That percentage rose to 17% until December 2020. There are comparable though slightly lower percentages for additional and unplanned purchases. Roughly one household in four (21% to 26%) with at least one child under 18 years made unplanned purchases in August to December 2020. The number of households without children which made unplanned purchases was only about half as high (11% to 14%). In all, roughly one household out of three (32% to 35%) with at least one child below the age of 18 made additional purchases and/or brought planned purchases forward because of the VAT reduction. So did approximately one household out of five without children under 18 years (17% to 22%) in the same period.
Such VAT reduction effects were more noticeable in households with higher income than in households with lower income. From August to December 2020, 10% to 13% of households with a monthly household net income of less than 2,000 euros brought major purchases forward because of the VAT reduction. 22% of households with a monthly income of more than 5,000 euros did the same in August 2020. Their percentage rose to 34% until December 2020. There was a similar result for additional purchases. While the VAT reduction provided an additional incentive for roughly one household in ten (9% to 13%) with a monthly household net income of less than 2,000 euros, this was the case for twice as many households with an income of more than 5,000 euros (15% to 24%). In all, roughly one household out of six (14% to 17%) with a monthly household net income of less than 2,000 euros made additional purchases and/or brought planned purchases forward because of the VAT reduction. 29% of households with a monthly income of more than 5,000 did the same in August 2020. That percentage rose to 40% until December 2020.
Please note that the survey considered total household income instead of per capita income. This means that the group of households with children and that with a higher income overlap to some extent as multi-person households, on average, have a higher income. The survey does not assess the actual effect which the VAT reduction had on households financially, for example by enhancing their purchasing power through price decreases.
VAT reduction primarily used to bring forward purchases of electrical appliances and furnishings
Roughly half of the households (47% to 52%) which brought forward planned purchases in the period from August to December bought electrical appliances such as TV sets, fridges and laptops. A similarly high percentage (43% to 50%) brought forward purchases of furnishings and household articles such as furniture, lamps and tableware. 23% to 30% brought forward purchases of vehicles (for instance cars, bicycles, motorcycles) and 26% to 30% purchases of clothing and footwear. Multiple responses were possible here.