German Chancellor Gerhardt Schroder's package of tax cuts, which successfully found a passage through the Bundesrat in July and represented a huge triumph for Schroder, looks set to be the last, at least for the forseeable future. Germany's top civil servant responsible for tax policy, Heribert Zitzelsberger, this week ruled out the possibility of further big cuts in this or the next parliament.
German industry is the big winner of Schroder's tax reforms, with corporation tax being slashed from 40 per cent to 25 per cent and the abolition of corporate capital gains tax in 2002 (admittedly, some way off). Zitzelsberger, the state secretary in the finance ministry, said that whilst saying no to further cuts, the authorities could be sympathetic to industry calls for specific improvements to the way tax is levied.
In an interview with the Financial Times, Mr Zitzelsberger said: 'A continuation of the tax reform debate is not a priority for this or the next parliament.' He said that the cut in the tax rate for incorporated companies to 25% and the elimination of capital gains tax on corporate cross shareholdings, plus a significant reduction in income tax from 51% this year with a gradual slide to 42% by 2005, were easily enough to put Germany on an equal footing with other key industrial nations.
Zitzelsberger, who played a pivotal role last month's tax reform package, stated: 'After this reform, Germany is in the middle of the scale. We are no tax haven, but we have a rate appropriate to an average industrial state, where we belong.'
Mr Zitzelsberger has not ruled out measures geared towards simplifying the tax system in Germany, and there have been calls for the government to take steps towards making things easier. For example it might be possible to replace the current complex procedure, whereby domestic subsidiaries of big German groups are taxed separately at local level, with group-wide taxation, he said.
According to Mr Zitzelsberger, the government will also examine tax on dividends from foreign subsidiaries. Although taxed in the country of origin, such payments can sometimes be subject to higher German levies, in spite of double taxation treaties.
Another aspect of taxation which may be addressed by the Germany government is the local trading tax, called the Gewerbesteuer, which is levied as a proportion of turnover and goes towards funding local authorities. A very contentious tax, these levies have been criticised by businesses because they contribute to the overall tax burden and are subject to significant local differences. Under Schroder's new taxation system, company tax will fall to 25 per cent from January 2001 although in practice companies will be paying closer to 39%, if local trading tax and surcharges are included. Mr Zitzelsberger said: 'People have been talking about abolishing the Gewerbesteuer for more than 100 years," but added that the real problem was finding an alternative.
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