Germany's Seehofer Makes Tax Key Election Issue

15 February 2012

Leader of Germany?s ruling Christian Social Union (CSU) Horst Seehofer has recently announced plans to make tax policy a central issue of the upcoming elections in 2013, following the decision by the Social Democrats (SPD) and the Green Party (Gr?nen) to reject the coalition government?s tax relief measures in the Bundesrat.

Alluding to the Opposition parties? decision to veto the tax relief measures, Seehofer underscored that the Social Democrats' plans were to the detriment of the economy. Seehofer stressed that during the election campaign next year it would be made clear that the coalition parties, the Christian Democratic Union (CDU), the CSU and the Free Democratic Party (FDP) stand united on plans for tax cuts for low- and middle-income earners, while the SPD and the Green parties stand firm on tax rises. Both parties have called for the 42% top rate of income tax to rise to 49%.

Echoing these views and also highlighting the clear divide between the parties, German Chancellor Angela Merkel (CDU) recently reiterated that the agreed increase in the tax-free allowance is a constitutional requirement, which must therefore be implemented. The plans simply cannot be opposed, even by the Opposition, Chancellor Merkel pointed out.

The German Chancellor underlined that it was simply incomprehensible that the SPD and the Green parties did not want to alleviate the effects of fiscal drift, but instead wanted to raise taxes. For millions of individuals in Germany on low- and middle-income this is ?simply unfair?, she added.

SPD leader Frank-Walter Steinmeier insisted, however, that the issue of tax reform would only be relevant in 2013. Alluding to the fact that the government intends to finance its tax cut proposals on credit, Steinmeier made clear that his party would continue to oppose the plans.

While conceding that the personal tax allowance must rise in accordance with the constitution, Steinmeier nevertheless explained that this could only take place once the report is available and the rise is justified. The government plans to submit its report next year.

Germany?s black-yellow coalition government failed to receive support for its tax cut plans in the German Bundesrat, or upper house of parliament, when a bill providing for tax cut measures of around EUR6.1bn (USD8bn) was rejected in a first reading.

Federal states led by the Social-Democrats and by the Green Party ?massively criticized? the government?s ?small tax reform? plans, arguing that the ?irresponsible? measures are in direct contradiction to the need for budgetary consolidation, particularly in view of the debt brake rule enshrined in the country?s constitution. There is currently no scope for tax relief, they insisted.

?Tax cuts of today increase the debt of tomorrow?, the finance ministers of the Bundesrat finance committee had argued earlier, before advising the Bundesrat plenary to completely reject the federal cabinet?s bill.

The German cabinet adopted back in December the long-awaited bill providing for an increase in the personal tax allowance and tax brackets in Germany to compensate for the effects of inflation (fiscal drift).

In accordance with government plans, the personal income tax allowance is to progressively rise by a total of EUR350, or 4.4%, by 2014 to EUR8,354 in two stages: by EUR126 from January 1, 2013, and by a further EUR224 from January 1, 2014.

Income tax bands in Germany will also rise by a total of 4.4%.

In future, the black-yellow coalition also plans to examine the effects of fiscal drift every two years to determine whether or not similar adjustments are to be made.

No adjustments have been made to compensate for fiscal drift as regards annual income above EUR250,000 for individuals or in excess of EUR500,000 for married couples, those currently subject to a 45% rate of income tax or so-called ?rich tax?.

The Bundestag, Germany?s lower house of parliament, is due to examine the government?s proposed new law at the beginning of March, before the text is finally returned to the Bundesrat for a second reading.

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Source: http://www.tax-news.com/news/Germanys_Seehofer_Makes_Tax_Key_Election_Issue____53967.html

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