Major relief package passed in the National Council

The current difficult times, caused by the COVID-19 pandemic, the war in Ukraine, supply chain issues and high energy prices, are characterised by massive price rises worldwide. For Austria alone, an inflation rate of 7.5 % is expected for the year as a whole, and 5 % for 2023. The resulting sharpest rise in prices in several decades is now being mitigated by a multi-tiered package of measures worth billions.

The package passed by the National Council at the end of June comprises three stages – vulnerable groups will be relieved in the short term, with relief measures in autumn also significantly benefiting the "middle class". Structural relief measures are finally planned for early 2023 to bring about a lasting strengthening of purchasing power. The most significant measures – including the abolition of the fiscal drag – are presented below in an overview. Please note that not all measures have been finally decided upon yet.

Inflation compensation of €300 for vulnerable groups

Recipients of social assistance, unemployment insurance benefits, equalization allowance, study grants, transitional allowance, and rehabilitation, sickness, and reintegration benefits will receive an additional €300 cost-of-living adjustment as a short-term measure, on top of the €150 they already receive, starting from September. Furthermore, funding for the so-called "Wohnschirm" (housing shield) to support with rising housing costs and prevent evictions will be significantly increased.

One-off payment or inflation offset amount

For recipients of small and medium pensions, there will be a special one-off payment (in September) instead of the originally planned cost-of-living allowance (which will, however, generally remain in place). The amendment was also made because recipients of a total pension between €1,200 and €1,800 will benefit most from the €500 one-off payment.

CO2 Pricing and Climate Bonus

The introduction of a CO₂ pricing scheme is being postponed from 1 July 2022 to 1 October 2022 to ensure that relief is provided at the same time through the climate bonus. The climate bonus will be increased to €250 on a one-off basis for 2022. In addition, recipients of the regional climate bonus will receive an anti-inflation bonus of €250, which in principle amounts to an inflation adjustment of €500 per adult living in Austria (provided they have had their main residence in Austria for at least six months). The anti-inflation bonus is tax-free up to income tax bracket 50 %; there is a relief of €250 per child up to the age of 18. The climate bonus is either paid directly into your bank account or sent as a voucher by post. To ensure the payment is transferred, it is advisable to keep the bank details on file with FinanzOnline up to date (access via mobile signature or digital citizen card).

"Special Family Allowance", increased Family Bonus Plus, and increased child supplement

Specifically to provide relief for families, a one-off "special child benefit" of €180 per child will be introduced. Furthermore, the increase of the Family Bonus Plus from €1,500 to €2,000 per year and child will be brought forward to 1 January 2022 (instead of 1 July 2022.

Tax-advantaged "inflation bonus" from the employer

If an employer pays an employee additional wages in 2022 and 2023 due to increased prices, such a "cost of living bonus" is tax-free and social security-free up to a total amount of €3,000 each, provided certain conditions are met – no further ancillary wage costs are incurred either.

The "cold progression" is to be abolished

The tax relief package is also intended to bring about the long-discussed abolition of ‘bracket creep’. From 2023 onwards, the thresholds for the tax brackets (with the exception of the 55 % marginal tax rate) and tax-deductible allowances (e.g. the transport allowance including surcharge, the pensioner’s allowance, the maintenance allowance, single-parent and sole-earner allowances) automatically increased by two-thirds of the inflation rate for the period from July to June, with effect from 1 January of the following year. Decisions on the remaining one-third are taken annually on a case-by-case basis via a draft bill on relief measures for workers and/or pensioners.

Cold progression refers to the negative effect that has previously occurred with every wage and salary increase, or with higher taxable income from self-employment. Due to the progressive income tax rate, the average tax burden increases because higher tax rates have to be paid on an ever-larger proportion of income. Ultimately, the higher taxation of the salary increase leads to a loss of purchasing power, as long as the price increases are not offset by an income increase equivalent to inflation.

Valuing Social Benefits

Similar to the effects of fiscal drag, the real purchasing power of the population also decreases with non-indexed social benefits during persistently high inflation rates. Therefore, rehabilitation, health, and retraining allowances, study grants, family allowances, and child tax credits (including the family time bonus) are to be valorised from 1 January 2023. The basis for the annual valorisation is the inflation from July to June.

Reducing non-wage labour costs

To make Austria a more attractive economic location, non-wage labour costs will be permanently reduced by 0.3 percentage points. This also includes a reduction in the accident insurance contribution by 0.1 percentage points from 2023.

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