Tax advantage from 2025

Cold progression: this is how much more is left in the wallet

From next year, we will have more net income from gross wages and salaries and gross pensions. The "Krone" calculates how taxpayers will benefit.

(Bild: stock.adobe.com - magele-picture)

In 2025, we will once again have more net income. The partial abolition of "cold progression" means that the income tax brackets, from which the tax rate increases, will be raised significantly again at the beginning of next year. This will benefit both employees and pensioners.

Almost two billion euros will be "returned" to taxpayers in the form of tax savings under the title "Abolition of cold progression". The government presented the agreement on Thursday.

The actual amount by which the tax brackets will be raised is just under four percent. We show you how much more you will net each month and year as a result. A top financial and tax expert calculates how taxpayers - from low to high incomes - will actually benefit.

What is cold progression?

Cold progression is a creeping tax increase: by adjusting wages, salaries and pensions to inflation every year, we fall into higher tax brackets without becoming richer in real terms. But we pay more taxes. To compensate for this effect, the tax brackets have been increased every year since 2023.

Cold progression is a creeping (therefore "cold") tax increase: due to the annual adjustments to our income in line with inflation - via health insurance agreements for employees and pension increases for pensioners - we automatically slide into higher tax brackets, even though we have not become richer after deducting inflation. The government has largely abolished this effect. Since 2023, the tax brackets have been increased every January. Result: the bottom line is more net from gross.

The basis for 2025 is inflation from July 2023 to June 2024, which was around five percent. Accordingly, there is an amount of just under two billion euros that will benefit taxpayers retrospectively. For a third of this - around 650 million euros this time - the government was able to decide at its own discretion whether certain groups, such as low-income earners or middle-income earners, should benefit more.

All income tax brackets will be increased by just under four percent
The ÖVP wanted to relieve the burden on high earners, the Greens on lower incomes. In order not to alienate any voter groups, both parties agreed to increase all tax brackets (except for the top tax rate of 55 percent, which applies to annual incomes of one million euros or more) by the same amount: all brackets will be increased by just under four percent. With an inflation rate of five percent, there will even be funds left over for other measures such as increasing the mileage allowance.

(Bild: Krone KREATIV/stock.adobe.com)

The Viennese entrepreneur and financial expert Bernhard Angeler, who runs the service website finanzrechner.at, has calculated for the "Krone" what the increase in pay scales will mean for everyone: With a gross monthly income of 1700 euros, the annual tax saving is 121 euros, and the same for 2000 euros. For 3000 euros it is 201 euros, for 4000 to 6000 euros it is 334 euros and for 7000 euros it is a whopping 538 euros (see chart). Anyone can work out how much they will actually get from this on finanzrechner.at: On the homepage there is a new link "Kalte-Progression-Rechner 2025".

Financial expert Bernhard Angeler has calculated who will benefit and how much.

(Bild: Zwefo)

This does not include any wage increases due to wage agreements still to be concluded this year (metalworkers, trade, etc.) and the pension increases that will take effect in January 2025. For many, the actual additional income next year is therefore likely to be even higher.

The first tax bracket, up to which no income tax is payable, will also increase
The lowest tax bracket, up to which no income tax is payable, will be raised from EUR 12,816 per year to EUR 13,308 (see chart below). However, this also means that anyone currently earning less than 12,816 euros will not benefit from the increase in the tax brackets. Unless, of course, they would rise above this first level in the course of a wage increase.

(Bild: Krone KREATIV/stock.adobe.com)

Finance Minister Magnus Brunner is proud of the partial abolition of cold progression. It used to be the case that taxpayers were the stupid ones for years and automatically paid more and more, until at some point, after years of cold progression, a government introduced a tax reform. This was then usually touted as the biggest tax reform of all time. Brunner: "With the abolition of cold progression, we have put an end to the creeping tax increase. We are giving people back the money that inflation has taken from them. In this way, we are relieving the burden on Austrians in the long term. It is an act of fairness that working people are left with more net from gross."

Finance Minister Magnus Brunner: "It is an act of fairness that working people are left with more net from gross."

(Bild: Peter Tomschi)

In 2023, the relief amounted to 1.85 billion euros. At that time, the first two tariff levels were raised more at the request of the Greens in order to relieve the burden on low earners. In 2024, the relief even amounted to 3.65 billion euros due to the previously significantly higher inflation. The increase was already more even this year - and in 2025 it will be really even.

Further relief will apply to certain target groups
In addition, further relief has been decided for certain target groups:

• For single earners or working single parents on low incomes, the child supplement in the form of an increased deduction now applies as a permanent right - without the previous time limit.
• The daily and overnight allowances will be increased: Daily allowances for domestic business trips may then be up to 30 euros (previously 26.40 euros). The overnight allowance will be increased from 15 to 17 euros.
• The mileage allowance for cars, motorcycles and bicycles will be set at a uniform 50 cents per kilometer.
• Reimbursement of costs for public transport use on business trips: The transport allowance for the first 50 kilometers will be increased to 50 cents.
• New regulation for remuneration in kind for official housing: The living space that is completely exempt from non-cash benefits will be increased to 35 m² and common rooms will no longer be fully allocated to each individual resident as before, but on a pro rata basis.
• Valorization of the exemption limit for other emoluments.

There is also relief for small businesses:

• To ease the burden on small businesses, the small business limit will be raised to EUR 55,000.
• The new limit applies to both turnover tax and income tax, which also eliminates an existing inconsistency.

According to Brunner, the Austrian model is better than the German one
According to Brunner, the Austrian way of dealing with cold progression is better than in other countries: "We have found the right mix for us. The German model only provides for a report every two years, has no automatism and the Bundestag has to decide how the money gets to the people. In Switzerland, there is an automatic system, but only for federal taxes. At the same time, however, not all cantons, which collect the majority of taxes, have an automatic system."