Demand for tax cuts in Germany grows after record budget surplus

Demand for tax cuts in Germany grows after record budget surplus
A pay slip showing income and solidarity tax charges. Photo credit: DPA
Germany’s record federal budget surplus has renewed a fiery debate about tax cuts. Different coalitions are now proposing their own tax-relief programs, with widely different priorities.

The tax cut debate in Germany continues to gain momentum in light of the record-breaking federal budget surplus.

Federal Economics Minister Peter Altmaier (CDU) has outlined a plan to reform corporate taxes, while SPD leader Norbert Walter-Borjans spoke out in favour of aiding lower and middle-class income families. 

READ ALSO: What you need to know about tax changes in Germany in 2020

“We have to improve general conditions for companies so they remain internationally competitive,” Altmaier told DPA.

“Our companies need more air to breathe so that they can make crucial investments in future technologies. This includes tax relief and cutting red tape.”

Cuts for lower income brackets

Altmaier has long been calling for lower corporate taxes, as well as a complete abolition of the Solidaritätszuschlag, a German tax created in 1991 to support the reunification costs. However, the SPD does not support these measures.

Walter-Borjans previously told the Süddeutsche Zeitung, “We have to decide: Do we want lower- and middle-class earners to keep more of their wages at the end of the day? I think so.”

READ ALSO: Germany debates how to spend massive budget surplus

The German Trade Union Confederation (Die Deutsche Gewerkschaftsbund or DGB) also supports tax cuts for lower income brackets. 

In a statement given to the Neue Osnabrücker Zeitung, DGB board member Stefan Körzell claimed the newly reallocated funds from tax breaks would flow directly into consumer's pockets and thus strengthen the German economy. 

Supported by low interest rates, the federal government achieved a record surplus of €13.5 billion in 2019 despite a weak economy. Die Linke, the FDP and the AfD have all called for this surplus to be reallocated to support tax relief.

READ ALSO: The ultimate guide to paying taxes in Germany

SPD co-chair Saskia Esken, on the other hand, rejected calls for tax cuts. “I really think it’s a dangerous proposal to cut taxes now,” she told the Bayerischer Rundfunk.

Instead, she called for a “long-term investment plan” so that investments can be made regardless of future budget restrictions and economic conditions.

The tax debate was also spurred on earlier this week when statistics revealed that more than 3.5 million Germans paid the top tax rate in 2015 – and the trend is still rising. Die Linke faction chairman Dietmar Bartsch claimed that many workers are declared top earners, even if they only take home middle-class salaries. 

Walter-Borjans (SPD) emphasized that the decisive factor is not the taxation of the last earned euro, but the percentage that goes to taxes from total income. For most people, this average tax rate is between 15 and 25 percent. 

In an interview with “Handelsblatt”, Walter-Borjans previously disagreed with SPD proposals leading up to the last federal election: “The income when the top tax rate would apply should rise, but the tax rate itself should increase as well.”

The DGB also demands that the top tax rate be raised from 42 to 49 percent – but this rate should only take effect at an income level of €74,500. Today, the 42 percent rate already applies to taxable income above about €56,000.

'I would not rush this'

Walter-Borjans was also an opponent of corporate tax reform: “I would not rush this. We should not drift off course just because the federal government has a surplus, or just because someone fears that the economy may become a little weaker.”

According to the Süddeutsche Zeitung article, Walter-Borjans expects tax relief for lower – and middle-class incomes to reduce government revenue by at least €30 billion.

“So the decision is: do we want to go without good schools, maintained streets, high-quality public transport, hospitals and widespread mobile coverage? Without investing in humanity and social cohesion? I don’t think so!”

He continued, saying there is only one alternative: “Closing tax loopholes, involving top earners more in the financing of the community and paying for investments in our future through the future by using loans. Just like successful companies do.”

 


Member comments

Become a Member to leave a comment.Or login here.