Austria to halve VAT on essential foods July 2026
The Austrian Parliament lower house passed on 21 May 2026 draft bill to significantly reduce the VAT rate on selected staple foods as part of its ongoing efforts to combat persistently high inflation. From 1 July 2026, the VAT rate on a defined basket of essential food items will be cut from 10% to 4.9%, effectively halving the tax burden on everyday grocery spending.
The cut will now in all likelihood pass straight through the upper house without change.
The measure was confirmed on 14 January 2026 and reflects growing political concern about the cost-of-living pressures facing households. While inflation in Austria has begun to ease, it remains elevated by both historical and European standards, with daily shopping costs cited as a particular strain on consumers.
A non-recyclable plastics tax is planned to fund the VAT cut to 5%, due to come in by October 2026.
Similar announcements of food VAT cuts have been made in Sweden and Denmark.
Supporting households and economic competitiveness
Announcing the reform on 14 January 2026, the Austrian Chancellor emphasised that rising prices for basic necessities have become a tangible burden for many people. Reducing VAT on a “selected shopping cart” of essential goods is intended to provide direct, visible relief at the checkout, while also supporting domestic retail activity.
The government has framed the VAT cut as part of a broader inflation-fighting strategy, with a stated objective of bringing headline inflation down to 2%, roughly half of current levels. Beyond household budgets, officials have also highlighted the wider economic impact of sustained inflation, noting that it undermines Austria’s attractiveness as a business location and erodes international competitiveness.
Scope and next steps
The authorities have published a definitive list of food products that will qualify for the reduced 4.9% rate. These include: milk (including lactose-free milk); yogurt; butter; fresh eggs; fresh and frozen vegetables; fruit; rice; wheat flour and semolina; uncooked and unfilled pasta; bread and table salt.
The VAT reduction will be counter-financed, including through the introduction of fees on parcels imported from third countries, such as China. According to the government, this approach ensures fiscal balance while also strengthening the position of Austrian retailers competing with low-value imports.
See more in our Austrian VAT guide.
