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Middle-income earners to keep hundreds of euros under proposed tax plan

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Middle-income earners to keep hundreds of euros under proposed tax plan
Photo: DPA
10:10 CET+01:00
If the Social Democrats (SPD) eventually agree to join another coalition with Angela Merkel, middle income earners will feel the benefit in their pockets, the Frankfurter Allgemeine Zeitung (FAZ) reports.

Under the terms of the proposed coalition deal, a singleton on €40,000 a year will be paying €600 less in tax by 2021, FAZ reported on Wednesday based on calculations by the Taxpayers’ Association.

The SPD leadership agreed on the proposed deal with Merkel’s Christian Union after five days of talks earlier this month. But the centre-left party must now convince their membership to back the deal.

Overall, the coalition deal offers tax relief across the pay spectrum. A single-income family with two children on a salary of €40,000, for instance, can expect to have €860 more at their disposal by 2021.

The savings will come in different ways depending on people’s familial situation. Unmarried people without children will feel the benefit mainly through the abolishment of the Solidarity Tax for low and middle income earners.

The tax was introduced after reunification to pay for the rebuilding of eastern Germany. But, with the eastern states having made progress in modernizing infrastructure, conservative parties have for several years wanted to phase it out. People who earn over €54,000 will continue to pay the tax.

Singletons will also feel the benefit of a change in the way social security contributions will be distributed. Someone on a €25,000 salary will save €163 in this way.

Families - already exempt from paying the Solidarity Tax - will benefit mainly from an increase in child support payments, which are set to increase by €25 a month.

Research by the OECD last year showed that Germany has the second highest tax burden worldwide after Belgium.

The OECD calculated each country's tax wedge - the gap between what employers take home in pay and what it costs to employ them, including personal income tax and social security contributions.

Germany had a tax wedge for single, childless workers of 49.4 percent, behind Belgium at 54 percent. That means nearly half of a single person's income currently goes towards taxes and social security contributions in Germany.

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