The Bundestag passed legislation on Thursday aimed at easing the financial burden on some workers and business owners across Germany with targeted tax cuts.
Whether you commute to work by car, run a restaurant or volunteer in Germany – perhaps as a sports coach or care giver – the new measures are designed to put more money back in your pocket.
But celebrating the measures may prove to be premature: the bill still faces a crucial hurdle in the Bundesrat, Germany’s upper chamber, where approval is far from guaranteed.
What’s the problem?
The planned tax cuts are expected to cost both the federal government and individual states billions of euros in lost revenue.
According to initial calculations, the states alone could lose around €11.2 billion by 2030, with municipalities facing an additional €1.4 billion shortfall.
Already grappling with dire financial situations, Germany’s federal states are demanding compensation from the federal government in Berlin.
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But Finance Minister Lars Klingbeil of the centre-left Social Democrats (SPD) has drawn a clear line on this, stating in October that: “There will be no compensation from the federal government.”
This stance leaves the states in a precarious position, with little hope of getting any extra assistance to offset revenue lost from the proposed tax cuts, But they still have one powerful card still left to play.
Later this month, the tax relief bill still needs to win approval in the Bundesrat, which represents Germany’s 16 federal states. Members of the Bundesrat aren’t directly elected but are appointed by state governments to represent state interests.
Given the current financial climate, there is a real possibility that the Bundesrat may choose to block or postpone the bill, especially if the states’ demands for compensation are not met.
How would the planned measures benefit residents?
As previously reported by The Local, the tax relief package includes several headline measures.
Germany’s commuter allowance would rise to 38 cents per kilometre from the very first kilometre, replacing the current system where the higher rate only applied after 20 kilometres.
The value-added tax (VAT) on food in restaurants and similar venues would be permanently slashed from 19 percent to seven percent, a move intended to support a sector that has been hit hard by the pandemic and rising costs.
There are also increases in tax-free allowances for trainers and volunteers, with the figures rising to €3,300 and €960 respectively.
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The package also includes measures that would benefit Olympic medal winners and politicians themselves.
In future – assuming the bill passes the Bundesrat – bonuses for Olympic medal wins would be tax-free.
Also the maximum amounts for tax-deductible donations to political parties would be doubled.
The measures have been criticised by some as primarily benefiting certain groups, and wealthy groups in particular, as opposed to Germany's general population.
Economist Veronika Grimm told the Rheinische Post newspaper, that the targeted proposals wont help across the board, adding that these kinds of tax cuts are heading in "completely the wrong direction".
The Federal Environment Agency also took a critical view of the commuter allowance, arguing that it encourages commuting by car rather than public transport, which is more harmful to the climate.
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