The main German opposition party, the Christian Democratic Union, upped the ante on the government this week by unveiling a new, albeit watered-down, package of tax reforms.
Following lengthy discussions with Bavarian sister party, the Christian Social Union, the CDU’s main proposal involves a reduction in the top rate of income tax to 36% from 45%, in addition to scrapping the local municipal tax system. However, the tax proposals do not go as far as the CDU’s chief financial spokesman, Friedrich Merz would have liked.
This means that Merz’s call for a tax system with three basic rates will remain on hold for the time being. In addition, his proposals to scrap tax breaks for commuters and homeowners have also been placed on the CDU’s policy backburner.
The plans have attracted criticism from the government’s finance minister Hans Eichel, who labelled the proposals “unfinanceable”, and suggested that they would lead to a EUR20 billion shortfall in tax revenues.
Eichel has ruled out the chance of further tax cuts beyond those scheduled for 2005, when the higher rate of income tax will fall to 42%, and the lower rate to 15%.
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