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ECONOMY

Government moots delaying tax cuts

The German government is considering putting back its tax reform plans for a year to compensate for lost revenue from the weak economy, according to Der Spiegel magazine.

Government moots delaying tax cuts
Photo: DPA

The Finance Ministry is weighing up the possibility of deciding on the reform this year, but waiting until 2011 to implement it, to give the economy more time to recover from the global crisis.

Reiner Haseloff, economy minister for Saxony-Anhalt, and member of the ruling Christian Democratic Union said this would be a good idea.

He told website news-de, “It would make no sense to burden the public purse to such a degree that no further investment was possible. The tax reform should only be introduced when tax revenues begin to increase again, not already in 2010 or 2011.”

Leading politicians from governing coalition partner the Free Democratic Party (FDP) are still pushing for the €24 billion tax relief written into the coalition contract.

Birgit Homburger, head of the FDP’s parliamentary group told Sunday’s Frankfurter Allgemeine Sonntagszeitung, “The FDP demands a reduction in tax of an annual sum of €24 billion. With that we are holding exactly to the coalition contract. “

But the CDU is more open to the idea of delay. Wolfgang Böhmer, the party’s state premier of Saxony-Anhalt sounded sceptical of anything being possible this years.

He said, “An annual tax reduction of €24 billion is something I fundamentally consider feasible. But it certainly cannot come now under current conditions.” He said the coalition contract did not specify how much the tax reduction would amount to.

The subject is expected to be discussed at the current crisis meeting of the governing coalition.

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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