Germany's CDU Party Approves Election Programme

by Ulrika Lomas, Tax-News.com, Brussels

01 July 2009

In the absence of certain tax rebels, and with a relaxed air of unity, leaders of Germany’s Christian Democratic Union (CDU) party and Bavarian sister party the Christian Social Union (CSU) finally approved their party’s election programme during a meeting held at the beginning of the week.

While resolutely rejecting the idea of tax rises, despite renewed warnings from chief economists, party leaders Angela Merkel (CDU) and Horst Seehofer (CSU) have firmly pledged to press ahead with tax cut plans within the next four years.

Firmly embedded at the heart of Union’s election programme is its commitment to fundamentally reform income tax rates, in a desperate bid to reduce the effects of fiscal drift or “kalte Progression”, a phenomenon whereby monetary depreciation and salary increases, coupled with unchanged taxes means that a larger proportion of tax is levied on earners. Determined to address this issue, the party has outlined the following measures:

• The reduction of taxes for the middle classes.
• The progressive reduction of the lowest rate of income tax. The Union are planning to reduce this rate initially from 14% to 13%, while then lowering the rate further to 12%.
• The threshold for the top rate of income tax (42%) will be increased in stages, from EUR52,552 to EUR55,000 in the first instance, then finally to EUR60,000. The top income tax rate will, however, remain unchanged.

Other key tax measures contained in the election programme include the following initiatives:

• Further reform of corporate income tax, in an endeavour to shelter German businesses from the effects of the prevailing economic crisis. The Union is eager to reduce the burden borne by businesses, to enable them to increase their growth and improve their competitiveness internationally.
• The promotion of private pensions by simplifying tax incentives.
• A structural review of VAT regulations, taking into account European competition in key areas.
• Simplification of the taxation process.
• A review of the country’s inheritance tax.

Eager to promote research and development, key to economic growth and job creation, the CDU has also stated that its finance and tax policy must be designed to drive the innovation process. The party is therefore promising to introduce tax incentives for research, intended to support small and medium-sized enterprises.

Recognising the importance of private investors in supporting young and innovative companies, particularly given the current banking crisis, the CDU are pledging to improve existing conditions for investment in venture capital.

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