German Finance Minister Peer Steinbrueck has spoken out this week regarding his intentions to increase the rates of income tax for the wealthy in a bid to recoup revenue that will be lost as a result of a recent ruling by the Constitutional Court.
A ruling passed earlier in the year which allows some German citizens to offset health contributions against tax has led to an unexpected gap in revenue generated through taxes. It is thought that the losses incurred amount to as much as EUR6bn.
Speaking out on the matter, Mr Steinbrueck stated: "We will make up for that in part through new (tax) revenues from higher earners."
This will come a huge disappointment to thousands of German citizens who were anticipating the benefits of large income tax cuts due in 2010.
If the move, which is still under negotiation, goes ahead, many of them will instead face higher rates of taxation.
For Steinbrueck, the decision will be critical in not only securing the federal government's budget for 2011, but also for gaining support across the board from voters in the country.
Giving comment on the situation, a spokesperson for the government stated to the Financial Times on Monday that:
"The ruling cannot be allowed to endanger our budget consolidation efforts. On the other hand, we cannot accept a situation whereby modest earners will have to finance whatever steps we take to protect our tax revenues while high-earners get all the benefits. This is a political reaction to a technical problem."
The government is expected to discuss solutions to the problem in the coming months. However, the issue is likely to expose the ideological split in Chancellor Angela Merkel's 'grand coalition,' with members of the centre-right CDU already agitating for tax cuts ahead of next year's election. The left-leaning SPD on the other hand, is expected to back proposals which will ease the tax burden on low and middle income earners at the expense of the wealthy.
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