Eichel May Accelerate Tax Cuts Planned For 2005

by Ulrika Lomas, Tax-News.com, Brussels

13 June 2003

According to a Financial Times Deutschland report this week, German Finance Minister Hans Eichel has expressed a desire to bring forward tax cuts scheduled for 2005 by one year.

Plans are already in place to reduce the top rate of income tax next year from 48.5% to 47%, although if the Finance Minister is able to convince legislators of the merits of accelerating the tax cuts proposed for 2005 by one year, this will reduce the top rate further to 42% in 2004.

There already appears to be some support within governmental circles for bringing forward the tax cuts, and the Social Democrat parliamentary finance spokesman suggested to the FTD that speeding up the tax cut "is a suitable measure to help restore balance in the economy."

However, Eichel will still need to convince not only opposition party members, but more significantly the European Union, given Germany's rising fiscal debt problems which have lead to it breaching the Growth and Stability Pact threshold of 3% of GDP. The budget deficit hit 3.6% last year, leading to the imposition of an EU fine for breaking the Pact rules. Some recent estimates for 2003 have projected a worsening scenario, with debt rising to a potential 4% by the year end.

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