German Lawmakers Approve 'Wealth Tax'

by Ulrika Lomas, Tax-News.com, Brussels

03 July 2006

The lower house of Germany's parliament last week approved an EUR18 billion tax hike package that will increase the top rate of income tax and eliminate some tax breaks.

Under the bill, individuals earning more than EUR250,000 a year (US$316,000), and couples earning more than EUR500,000 a year will face a 3% tax increase from 2007, as the top rate of income tax rises to 45%.

Importantly, the government has decided not to apply the measure to family-owned companies, so as not to burden small firms with additional taxes and snuff out Germany's fragile economic recovery.

Self-employed professionals such as doctors and lawyers will also be exempt from the tax hike.

The same legislation will also cut tax breaks for commuters by barring employees from writing off the cost of the first 20 kilometers of their journey. Another measure will cut the tax-free threshold on interest earned on savings to EUR750 annually for single people from the current EUR1,370.

The Finance Ministry has estimated that the total tax package will raise almost EUR18 billion between 2007 and 2010.

The tax hike is due to go into effect on January 1, 2007 - at the same time as an unpopular 3% increase in value-added tax to 19%.

While Peer Steinbrueck, finance minister in Chancellor Angela Merkel's grand coalition government, acknowledged in Parliament that the government's tax measures are "not popular", he argued that some "hardships" are necessary so as not to "dump a mountain of debt at our grandchildren's feet".

However, the opposition Free Democratic Party observed in parliament that tax hikes are rapidly becoming "the grand coalition's trademark".

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