Abolition of cold progression - what's happening in 2023

With the abolition of "bracket creep," a long-standing demand has now been met. In the course of the legislative process ("Inflation Relief Package Part II"), further details have now emerged – as a government bill as of mid-September 2022 – regarding the specific effects in 2023.

As a general rule, two-thirds of the inflation rate is adjusted automatically, whilst the remaining third is earmarked for targeted measures. For the year 2023, an IHS/WIFO study serves as the basis for the inflation rate to be offset, which stands at 5.2 % (average annual inflation rate from July 2021 to June 2022). To combat bracket creep, the following (threshold) amounts will change, resulting in tax relief.

Adjustment of the income tax rate thresholds

Single-earner and single-parent tax relief

Maintenance deduction

Traffic deduction

Pensioner's tax credit

SV Refund

Further measures under Part II of the Cost-of-Living Relief Package are also intended to contribute to making tax law more environmentally friendly. For example, employer subsidies of up to €200 per year for the use of zero-emission vehicles are exempt from tax if these are used via car-sharing platforms (e.g. cars, motorbikes, e-bikes and e-scooters). In the agriculture and forestry sectors, the standard value and turnover thresholds for the flat-rate scheme are to be raised. Consequently, in future, a flat-rate profit calculation may be applied for a unit value of up to €165,000 and a turnover of up to €600,000 (increase in the turnover limit for entrepreneurs not required to keep accounts with regard to the application of the flat-rate scheme for agriculture and forestry). Finally, the employer’s contribution is also to be reduced from 3.9 % to 3.7 % from 2023.

Part III of the inflation relief package (to be introduced as a government bill in mid-September 2022) is ultimately intended to strengthen purchasing power by valorising social benefits annually from 2023 onwards. The following benefits will therefore be adjusted for inflation:

• Sickness, rehabilitation, and reintegration benefit;
• Retraining allowance;
• Study grants and student grants;
• Childcare allowance and family time bonus;
• Family allowance, back-to-school bonus, additional child payment and child tax credit.

The final enactment of the law remains to be seen.

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