German Tax Cuts Back On Table

by Ulrika Lomas, Tax-News.com, Brussels

24 June 2010

With less debt expected in Germany than previously anticipated, the debate surrounding the highly volatile issue of tax cuts has once again flared up within the coalition government.

Indeed, the ruling Free Democratic Party (FDP) has seized this opportunity with both hands, declaring that, in light of the latest figures, it will now be possible to implement the much sought-after tax reductions within the current legislative period.

Germany’s Economics Minister Rainer Brüderle (FDP) was swift to remark that the tax cut proposals contained in the coalition agreement have not been abandoned but simply postponed. While acknowledging that the top priority is to consolidate the country’s budget, Brüderle nevertheless emphasized that the quicker this is achieved, the sooner the government can begin to simplify the existing tax system and to reduce taxes. Lower taxes are still possible from now until 2013, Brüderle argued.

Echoing Brüderle’s latest remarks, the FDP’s financial expert Daniel Volk underlined the fact that there is now sufficient scope to reduce the burden on middle-income earners, adding that the EUR16bn in tax cuts, sought by the FDP, can now be financed.

Financial spokesman for the Christian Democratic Union party, Leo Dautzenberg, also expressed his belief that tax reductions are now possible, given the improved budgetary situation, stating that tax cuts of around EUR5bn could be introduced without the need for funding from elsewhere.

Defending the strict savings course pursued by the government, Germany’s Finance Minister Wolfgang Schäuble warned that, despite lower debt, given that the crisis is now over, the government must rigorously begin to reduce its high levels of new debt, without endangering the economy.

It is now expected that Germany will require new debt of between EUR60bn and EUR63bn – EUR20bn less than previously anticipated. This is as a result of increased tax revenue and lower labour costs, in part due to the improved economic situation.

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