Since January, 19 percent VAT has been charged on restaurant meals again, and the corona-related grace period is over. The extent of the consequences cannot yet be predicted. But one thing is certain: the guests will have to dig deeper into their pockets – and are therefore thinking about it more.
With the first days of spring the terraces of cafés and restaurants are filling up again, but the first consequences of the return to the normal VAT rate in the catering industry are also becoming apparent. While restaurants significantly increased their prices again at the beginning of the year, the industry’s sales rose only minimally compared to the same month last year and, adjusted for prices, even fell by more than two percent, as the Federal Statistical Office announced. This means that some of the restaurants have fewer guests, and some of them order less or are more price-conscious.
There are major differences within the industry. Especially in rural areas, restaurants complain about fewer guests, as the managing director of the industry association DEHOGA, Ingrid Hartges, reported in an interview with ntv.de. This development had already begun before the move away from the reduced VAT rate, and economists point to a structural change.
Since the beginning of the year, 19 percent instead of 7 percent VAT has been charged on food consumed in the restaurant. The industry had previously forecast 12,000 business closures and a price shock for guests in this case. The coming months will show whether more companies actually have to close than before. However, the price increase is already visible: a main course in a restaurant cost an average of 3.5 percentage points more in January than in December. Compared to 2020, it was a quarter more expensive, meaning the cost of eating out rose more than consumer prices overall.
Majority of restaurants increase prices
“The higher VAT is a big challenge for companies,” says Hartges. She points to the significantly increased costs for restaurateurs: In addition to higher energy and personnel costs, food in particular has become a quarter more expensive since the outbreak of the war in Ukraine. The prices for restaurant services rose less sharply during the period, as the association emphasizes. In January it was a good 18 percent compared to January 2022.
The reduced tax rate continues to apply to take-away and delivery meals. “Tax fairness looks different,” says Hartges. According to her, as a result of the higher VAT for eating on site, the majority of restaurants have increased their prices, but not all. Some had already taken into account the foreseeable end of the tax reduction and raised their prices in the fall. For others, the price increase is still pending. “Some of the companies did not increase sales in January, which is already the month with the lowest sales of the year, and only do so between February and April,” explains Hartges. “Others passed on the January tax increase one-for-one.”
DEHOGA managing director Ingrid Hartges sees the catering industry facing major challenges.
(Photo: picture alliance/dpa)
However, not all restaurants will pass on the higher VAT in full to their customers. DIW economist Marcel Fratzscher, for example, expected a price increase of around ten percent for customers.
Sales still well below pre-Corona levels
The industry still sounds a little less pessimistic than in recent months. According to Hartges, many customers show understanding and go to the restaurant despite the increased prices. “The companies are needed, also as a social meeting place,” says the head of the association. She even compares the break from everyday life there to a short vacation.
The catering industry was one of the biggest losers of the corona pandemic, with around 25,000 companies having to close permanently in the two years. Despite government aid such as subsidies and loans, short-time working benefits and, last but not least, the reduction in VAT on food from 19 to 7 percent. This January, according to the Federal Statistical Office, the industry’s sales, adjusted for inflation, were still 14 percent below the pre-crisis level of 2019. However, according to a study by the IFO Institute, restaurants in large cities have already recovered and their sales, adjusted for prices, are above the pre-Corona level.
In rural areas, the catering industry is sometimes much worse off than in the big cities. Since overall industry sales are still below the pre-Corona level, but above in the metropolises with strong purchasing power, numerous restaurants continue to have to struggle. In the eyes of economists, however, the justification for a lower VAT no longer exists once the pandemic ends. The structural change in the industry should not be accompanied by permanent subsidies. Because average spending on restaurant visits increases with household income, the lower VAT benefited wealthy households more than poorer ones. The Leibniz Center for European Economic Research Mannheim (ZEW) explained that this is socially problematic.