German Income Tax Cuts


Source: Sandra Ubben¸ PKF Malta

The German Chancellor Angela Merkel’s ruling center-right coalition has finally agreed¸ after weeks of debate¸ to cut income taxes for the low and middle wage earners. This is a minor¸ but indeed symbolic step for the upcoming elections in 2013.

The Mini-tax cut will reduce 6 billion Euro of the tax burden over a period of two years¸ in a compromise deal to end the public dispute that threatened to weaken Merkel’s government.

The ruling black-yellow coalition was recently under enormous pressure to settle their differences and prevent public controversy over tax policy¸ which seemed to have spun out of control lately.

The leaders from Chancellor Merkel’s Christian Democrats (CDU)¸ their Bavarian sister party Christian Social Union (CSU) and junior coalition partner the Free Democrats (FDP) agreed last Sunday to cut income taxes in two steps to both restore the justice of taxation and strengthen growth in Germany. First¸ there will be a tax cut of 2 billion Euros in effect by 2013¸ then another of 4 billion Euros in 2014.  Additionally¸ the government plans to increase the personal income tax allowance¸ and to increase income tax bands by the same amount¸ in order to counteract the “cold progression” (when taxes rise faster than real-terms incomes).[1]

The CSU chairman Horst Seehofer said that he had not agreed to those cuts initially¸ yet still welcomed the agreement to the cuts because the FDP had dropped its opposition to boosting childcare support. The CSU is confident that the plan is a very solid overall package. Seehofer recently put forward an alternative plan¸ one not requiring Bundesrat approval¸ proposing that tax relief be implemented by means of changes to the country’s solidarity levy.

Economy Minister Philipp Rösler¸ who leads the FDP had promised tax cuts ahead of the 2009 election and has suffered a dramatic slide in opinion polls since then¸ said the party will now focus on issues other than taxes. [2][3]




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