German Flat Tax Debate Revived

by Ulrika Lomas, Tax-News.com, Brussels

09 November 2010

The business wing of Germany’s ruling Christian Democratic Union (CDU) party has called for the idea of a so-called ‘flat tax’ to once again be placed at the heart of the party’s agenda – this time at the forthcoming party conference in Karlsruhe.

According to Oswald Metzger, a committee member of the CDU’s business association MIT, the flat tax rate, which should be applied to all types of income, should be between 30% and 35%. In order to finance the tax reform, Metzger revealed that a comprehensive cut in subsidies is envisaged.

Despite this latest drive, the flat tax system of taxation has become a decidedly uncomfortable subject for both the CDU and for its leader and Chancellor Angela Merkel (CDU). This tax model last made its appearance during the CDU’s election campaign in 2005, when the prospect of the system horrified voters and almost served to bring about defeat for the CDU and Bavarian sister party the Christian Social Union (CSU), with plans to remove tax breaks to fund the proposals proving highly unpopular. Since then, both parties have wisely endeavoured to avoid mention of the concept.

While the CDU’s leadership remain opposed to the idea of reviving the flat tax debate, Metzger remains equally determined to fan the intellectual debate on what he considers to be a sustainable tax system.

The MIT business group has also called for the country’s solidarity levy (Solidaritätszuschlag) to be progressively abolished by 2019, the date when the solidarity pact expires, and has underlined the need for tax cuts to be implemented in view of the favourable development of the economy and the expected EUR60bn in additional fiscal revenues arising.

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