German SPD Proposes New Surtax On The Wealthy

by Ulrika Lomas, Tax-News.com, Brussels

28 June 2005

Proposals by Germany's ruling Social Democrat Party (SPD) to introduce a new wealth tax have been interpreted by observers as a ploy to appeal to its core left wing vote ahead of the general election, which is expected in September.

Speaking after the party's top brass met in Berlin to discuss the election manifesto, SPD leader Franz Müntefering told reporters that the party plans to impose a 3% surtax on the 42% top rate of income tax for individuals earning more than EUR250,000 ($300,000) per year and couples earning more than EUR500,000 per year.

The surtax is only likely to generate a relatively small amount of additional revenue, and the party has made no secret of the fact that the measure is as much a psychological move as a serious attempt to fill the government's coffers. Müntefering stated that the additional money would be channeled into education, research and innovative technologies.

However, the SPD leader added that the tax hike would be dependent upon successfully reforming business taxation. At present, the vast majority of Germany's small and mid-sized firms pay income tax rather than corporate tax, and both the main parties, including the centre right Christian Democrat Union, have pledged to simplify the country's business tax regime, which is notoriously complex.

After suffering a humiliating defeat in a regional election in the state of Nord-Rhein Wesphalia, traditionally an SPD stronghold, Chancellor Gerhard Schroeder is expected to call a confidence vote in Germany's lower house of parliament, the Budestag, at the end of the week. This will trigger a constitutional process that should lead to the staging of a general election in September, a year earlier than planned.

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