Germany Examines Tax Simplification

by Ulrika Lomas, Tax-News.com, Brussels

18 August 2010

The German coalition government intends to take forward 'minor' tax reforms that will simplify the German tax system.

With the German economy having notched up it's strongest quarter of growth in two decades, Christian von Stetten, a senior member of the Christian Democratic Union's economic panel, has said that money has become available for long-overdue simplification measures. However, despite the economy's return to health, the government's priority remains to reduce the budget deficit, and the reforms will reduce taxes by the relatively small amount of EUR500m.

The reform proposals are currently being drawn up by the finance ministry and are expected to be unveiled in the autumn.

At the beginning of June, Germany’s coalition government announced key details of its draft 2011 budget and the country’s 2014 financial plan, aiming to save in the region of EUR80bn by 2014 by implementing drastic cuts in spending and by paring down tax breaks and other government subsidies.

The savings programme includes plans to review existing tax breaks and financial aid available in Germany, beginning by assessing and reducing the number of provisions granting exemptions to the so-called eco-tax (Ökosteuer). It also contains measures proposing to introduce a tax on the country’s nuclear industry, and to introduce a national, differentiated environmental tax on domestic air travel, taking into account price, noise, and fuel consumption. In the eight-point plan, the government also confirms its intention to swiftly establish the legal conditions for the introduction of a bank levy, the product of which is to flow directly into a restructuring fund.

Higher taxes for individuals currently paying the top income tax bracket have also been mooted; leader of the Christian Social Union (CSU) Horst Seehofer recently called for the tax burden to be increased on the country’s top earners while Sigmar Gabriel, head of the Social Democrats, has called for the top rate of income tax in Germany to be increased from 42% currently to 50%.

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