German Economic ‘Wise Man’ Calls For Increase In Sales Tax

by Ulrika Lomas, Tax-News.com, Brussels

08 February 2005

A key German economic policy expert has suggested that the government should increase its sales tax, in a bid to maintain revenues and to avert a potential “crash” in state funding.

Speaking to Der Spiegel magazine, Bert Ruerup, who is due to assume the chairmanship of Germany's panel of five economic ‘wise men’ in March, stated that an increase in the 16% sales tax could be undertaken as part of a wider package of reforms aimed at financing the health and social security system.

"Then an increase could work like an investment, which is amortised in a few years," Mr Ruerup told the magazine, in an interview published on Friday.

However, Ruerup warned that if no action was taken, state finances “will if anything crash into a wall in a few years".

The ruling Social Democrats are currently working on new tax reform proposals to be released ahead of the federal election in 2006, although the government has remained tight lipped about the contents of this reform package.

Nevertheless, the government has reportedly denied that a sales tax hike will be part of new tax measures.

"Our tax plan...will be developed for the 2006 federal election and there will be no further discussion and no further decisions on the issue before then," SPD General Secretary Klaus Uwe Benneter stated last month, according to Reuters.

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