Creeping increase

What the return of cold progression means

Due to the suspension of the abolition of cold progression, taxpayers are missing out on a lot of money.

(Bild: stock.adobe.com null)

The lip service paid to reducing the burden on the labor factor is apparently worth little. This is because the new coalition is reversing the previously celebrated abolition of cold progression - only partially, but this "trick" in the government program will cost taxpayers a total of 360 million euros per year.

Cold progression has been criticized for years. This is because it meant that with every wage increase, Austrians were burdened more due to the constant tax brackets. "Without adjustment, every percentage point of inflation eats away 400 million euros," says Agenda Austria expert Dénes Kucsera. In 2022, the National Council finally decided to abolish the tax, but even then there was a catch.

Third third to be decided arbitrarily
The government only indexed two thirds of the tax brackets to inflation, while the final third was to be decided at will. At the time, however, it was claimed that it would benefit wage taxpayers, more so in the lower tax brackets than in the higher ones. Now, the tax authorities are grabbing this third in full again from 2026 in order to balance their budget.

There was already criticism of the reform. Experts said that the state could dispose of taxpayers' money as it saw fit. The NEOS also saw it this way, but this did not stop them from nodding off the measure.

(Bild: Krone KREATIV)

"In total, the partial reintroduction of cold progression will cost employees 360 million euros in one year," criticizes Dénes Kucsera from the think tank Agenda Austria. The amount is based on the assumption that inflation in the period from July 2024 to June 2025 will be 2.7 percent.

The more someone earns and the more taxes they pay, the greater the effect. With a median income of around 2560 euros, the net effect would be 47 euros per year. With a gross monthly income of €4,000, it would be €80 net, and significantly more for high earners (see chart above).

"The amounts don't sound particularly high at first, but the employee takes this loss with them year after year. This adds up to several hundred euros over the years," emphasizes the expert.

Complete abolition would be a fair solution
Overall, this leads to an additional burden instead of a reduction in the burden on the labor factor. Kucsera is in favor of abolishing cold progression completely, as is the case in Switzerland, for example. "Unfortunately, exactly what we feared would happen with the partial abolition has occurred," says the expert. Although the budget crisis is obvious, the state should find the money elsewhere - after all, Austria has anything but a revenue problem.