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EXPLAINED: What the German parties’ tax pledges mean for you

The differences between the German political parties are nowhere more clear than on their tax pledges. Which ones are promising their most savings for people in your tax bracket?

EXPLAINED: What the German parties’ tax pledges mean for you
What do the parties say on tax? Photo: picture alliance/dpa

At no time in recent memory has a German election result been so tight. Up to three different coalitions are realistically possible after this September’s vote, with only the far-right AfD certain to play no part in the next government – and the Left Party almost certain not to. 

But what do the parties say on taxes and how would their pledges affect your post-tax earnings? We take a closer look.

The Social Democrats

Having narrowly won the elections on 25.7 percent of the vote, the SPD are now keen to lead the next government and form a coalition with the FDP and Greens.

In their manifesto the centre-left party pledge to “do more for tax fairness.” 

A breakdown of their tax pledges by the Centre for European Economic (ZEW) shows that most workers would stand to save a few hundred euros a year due to tax cuts in income categories all the way up to €150,000.

Those earning between €40,000 and €55,000 would stand to save the largest chunk of their earnings, with the SPD planning a drop in tax rates that would amount to €1,001 more in middle income earners’ accounts over the course of a year.

Those earning over a quarter of a million a year on the other hand will be expected to pay over €7,000 more into the state coffers every year.

READ MORE: Olaf Scholz – A safe pair of hands who wants Merkel’s job

The CDU

The centre-right party, led into this election by Armin Laschet, are making tax commitments that would amount to more money in the pocket of all Germans regardless of their earnings.

Pledges such as ending the solidarity tax (a tax set up after reunification to help east Germany modernize), plus changes to tax brackets, would create moderate savings among low income earners. Top earners would profit the most though.

Under the CDU plan, low income earners could expect savings of around €100 a year, middle income households would save between €400 and €700, while top earners would be relieved of an average of €11,000 of their tax burden.

The CDU have said they are against any kind of wealth tax.

SEE ALSO: Post-Merkel German election reaches final stretch

The Greens

Also on the centre-left of the political spectrum, the Greens have a fairly similar tax policy to that of the SPD, although they would offer more tax relief to the least well off.

The ZEW analysis shows that the environmentalists would offer tax relief of around eight percent to those at the very bottom of the pay scale (€1-10,000 annual salary).

The Greens would raise the tax rate to 45 percent for salaries over €100,000 and to 48 percent for salaries over quarter of a million. They would also seek to implement a new wealth tax which would charge one percent on assets with a value over €2 million.

Interestingly, the typical Green voter, who tends to be better off, would stand to gain least by voting for the Greens. According to the ZEW, all the other parties would offer a better deal to upper middle class earners.

Source: ZEW

The smaller parties

Tax cuts belong to the DNA of the liberal FDP, so it should surprise no one that they are promising tax relief across the board. Top earners would benefit much more than those at the bottom of the scale though.

The far-right AfD are popular in many poorer districts of Germany, particularly in the east. But their tax pledges would provide substantial tax relief to people earning over €80,000 while keeping the tax burden at the bottom end of the scale the same.

The left-wing Linke Party pledges big tax increases for the super rich, with people earning over a million euros having to give 75 percent of that to the tax man. They also want to impose a five percent wealth tax. At the same time they want to make the first €14,400 in earnings tax free.

How affordable are the pledges?

The election is coming at a time when the German budget has been pushed deep into the red by the pandemic. The state will have created some €400 billion in new debt by the end of next year.

READ ALSO: German consumer prices rise by highest level in three decades on back of pandemic measures

The FDP's tax pledges would amount to a drop of €88 billion in tax revenue based on the current size of the economy. The CDU's tax pledges would leave a €32 billion hole in the state revenues.

SPD candidate Olaf Scholz has called the CDU's tax pledges "unaffordable" and "immoral." The SPD tax pledge would lift state revenues by €14 billion a year, the ZEW found.

The right-wing parties argue that their pledges would boost economic growth, thus leaving the private sector to pull Germany out the pandemic induced clump. 

"After an economic crisis, there should be no higher tax burden for people and businesses, with the exception of corporations like Google," FDP leader Christian Lindner recently told Bild newspaper.

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POLITICS

Germany plans return to debt-limit rules in 2023

Germany will reinstate its so-called debt brake in 2023 after suspending it for three years to cope with the impact of the coronavirus pandemic, sources in the finance ministry said Wednesday.

Germany plans return to debt-limit rules in 2023

The government will borrow 17.2 billion euros ($18.1 million) next year, adhering to the rule enshrined in the constitution that normally limits

Germany’s public deficit to 0.35 percent of overall annual economic output, despite new spending as a result of Russia’s war in Ukraine, the sources said.

The new borrowing set out in a draft budget to be presented to the cabinet on Friday is almost 10 billion euros higher than a previous figure for 2023 announced in April.

However, “despite a considerable increase in costs, the debt brake will be respected,” one of the sources said.

Although Germany is traditionally a frugal nation, the government broke its own debt rules at the start of the coronavirus pandemic and unleashed vast financial aid to steer the economy through the crisis.

READ ALSO: Debt-averse Germany to take on new borrowings to soften pandemic blow

The government has this year unveiled a multi-billion-euro support package to help companies in Europe’s biggest economy weather the fallout from the Ukraine war and sanctions against Russia.

Berlin has also spent billions to diversify its energy supply to reduce its dependence on Russia, as well as investing heavily in plans to tackle climate change and push digital technology.

But despite the additional spending, Finance Minister Christian Lindner has maintained the aim to reinstate the debt brake in 2023.

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