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MONEY

How Germany’s Finance Minister wants to ease inflation with tax relief measures

Germany's Finance Ministry is planning to relieve taxpayers by billions next year to ease the burden of high inflation, according to media reports.

Christian Lindner (FDP), Federal Minister of Finance, speaks at a press conference on current political issues.
Christian Lindner (FDP), Federal Minister of Finance, speaks at a press conference on current political issues. Photo: picture alliance/dpa/dpa-Pool | Michael Kappeler

Federal Finance Minister and FDP leader Christian Lindner is planning to relieve taxpayers by €10.1 billion next year. The Finance Minister has repeatedly promised that the “state must not get rich off inflation” and that the increase in income tax revenues must be given back to the people.

According to a report by Spiegel, he plans to increase child benefits and the basic tax-free amount, above which income must be taxed. Lindner plans to present the proposals this week.

Increase in basic tax-free allowance

The Finance Minister plans to adjust the basic tax-free allowance and tax rate to the rate of inflation. This means that in future, each tax rate will only apply when income is adjusted upward by the inflation rate. Lindner’s tax experts are assuming an inflation rate of just under six percent this year, and price increases of 2.5 percent for next year.

READ ALSO: German inflation slows but energy price pressure remains

Accordingly, the basic tax-free allowance will rise from the current €10,348 to €10,633 next year and to €10,933 in 2024. The top tax rate, which currently starts at a taxable income of €58,597, will only apply at a level of €61,972 in 2023, and €63,521 one year later.

However, the tax threshold for very high incomes will remain in place. The income limit of €277,826, on which the so-called wealth tax rate of 45 percent is charged, will not be changed.

More child benefits

The Finance Minister’s plans also include an increase in child benefits. Child benefits for the first two children will increase by €8 to €227 per month in 2023. For the third child, parents will receive €2 more, also €227. For the fourth child, the monthly benefit will remain at €250. In 2024, child benefits for the first three children will rise by another €6 per month.

The Finance Minister’s proposals are by no means set in stone and are likely to change over the course of the next few months. For one thing, the assumed inflation rates are likely set far too low: experts are currently assuming that the rate of price increases will be around eight percent this year and will probably not fall to 2.5 percent next year.

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MONEY

Are the EC Card’s days numbered in Germany?

Maestro-function EC cards will no longer be issued as of July 2023. That may leave many people with German cards without the option to use the ubiquitous “EC Karte” abroad. Here's what you need to know.

Are the EC Card’s days numbered in Germany?

In a country that often lags behind much of the rest of the world digitally, cash is still king in many places. From restaurants to bars, cafes, and some smaller shops – options to pay by card are often limited. If a place does take card, it’s often the debit EC card, rather than a credit card or plastic from abroad.

That could soon see a shakeup.

Around 100 million EC cards are currently in use in Germany – more than the number of residents. These cards use two payment services: the Maestro service, which Mastercard provides, and the Girocard service which is independent. Maestro allows the holder to pay with an EC card when abroad, whether at a beach bar in Spain or a museum in Italy.

At home in Germany, Girocard processes EC card transactions.

But the EC card’s popularity here doesn’t translate elsewhere. German cards account for about half of all worldwide Maestro transactions, with the remaining half split absolutely everywhere else in tiny amounts. As such, it’s become difficult and expensive for Mastercard to maintain the old Maestro system that so many people in Germany love to use.

As of 2023, Mastercard will no longer issue Maestro cards, although people can still use ones issued before then until they expire. Without an alternative, that would leave some German debit card holders unable to pay using their new cards abroad.

Rumour has it that a similar Visa service – Vpay – is also on the way out soon.

That could see many cardholders ditch their old EC cards for Mastercard and Visa’s debit services — but around 250,000 businesses in Germany still only take payments made through the Girocard service — which isn’t a part of Visa or Mastercard. A big reason is that retailers pay lower fees to use Girocard.

What are the alternatives to EC Cards?

Where might that leave cardholders in Germany? It might put more pressure on retailers to accept services other than Girocard, which could incur fees that retailers will simply pass on to buyers.

It might leave some people carrying multiple cards, with a debit card they would only ever be able to use at home and not abroad. Or, it might mean carrying more cash just in case people come into an establishment that only takes cash and Girocard.

Some German banks have already moved ahead to offer customers integrated cards.

DKB, an popular online bank in Germany, sees Girocard as an outdated model that can’t be developed much further—and one that’s hard to use for online shopping. Since January, it has only issued customers with a Visa Debit card, but has left them the option to also have a Girocard. This will no longer be free though, costing customers an extra €1 a month.

A customer pays with EC card in a local shop

A customer pays with EC card in a local shop. Many businesses still only take EC card or cash payment in Germany. Photo: picture alliance/dpa | Rolf Vennenbernd

READ ALSO: Why Germans are finally choosing cards over cash

Other banks, like ING, use a ‘co-badge’ system that pays for both the licenses to Girocard and either Visa or Mastercard. However, that leaves cardholders paying a higher fee.

Professor Jürgen Moormann of the Frankfurt School of Finance and Management told Frankfurter Allgemeine Zeitung (FAZ) that MasterCard and Visa are probably discontinuing the Maestro and Visa services for EC cards abroad to put more pressure on Girocard within Germany.

This makes it more likely that retailers will start offering more card-based payment options, such as credit and debit card, to keep things simple for customers.

“They clearly want to increase their market share in Germany,” Moormann says of Visa and Mastercard.

While it’s still too early to tell whether the EC card will be squeezed out, regular cardholders may be left carrying more than one card — or paying higher fees for integrated cards — for a while yet.

In Germany at least, the EC card will be around for some time to come — but its days may well be numbered.

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