German Federal Council Approves Second Stimulus Package

by Ulrika Lomas, Tax-News.com, Brussels

25 February 2009

Germany’s Federal Council has approved the country’s second economic stimulus package, enabling the rapid implementation of government initiatives aimed at combating the economic crisis. However, in an attached resolution, the federal states have voiced their demands for further measures to be taken to alleviate the burden borne by individuals and businesses.

The resolution stipulates that the planned tax reductions are to be fully effective from January 1, 2009. It also calls for a timely structural reform of German income tax law to benefit individual taxpayers, and, more specifically, to moderate the effects of bracket creep – a phenomenon whereby monetary depreciation coupled with unchanged taxes has meant that a larger proportion of tax is levied on high earners.

Worth in the region of EUR50bn and containing far-reaching investment initiatives, as well as dramatic cuts in tax and social security contributions, Germany’s second economic rescue package is the most comprehensive in post-war history.

Among key initiatives contained in the package are the reduction of entry-level tax from 15% to 14%, with effect from January 1, 2009; a cut in health insurance contributions from 15.5% to 14.9%, from July 1, 2009; the introduction of a EUR2,500 scrapping bonus for older cars; a one-off bonus payment of EUR100 for every child; and support measures for businesses implementing reduced working hours and for staff training.

Recommended