Germany's FDP Laments Schäuble's Tax Course

by Ulrika Lomas, Tax-News.com, Brussels

15 November 2010

Germany’s ruling Free Democratic Party (FDP) has announced that it is 'disappointed' with fiscal proposals that have so far been put forward by German Finance Minister Wolfgang Schäuble, both in terms of reform of local authority financing and in terms of tax simplification.

Determined to spark greater commitment and zest from Finance Minister Schäuble, General Secretary of the FDP, Christian Lindner, recently underlined the fact that Schäuble would receive the full support of the party for any courageous steps that he might take, while warning at the same time that Schäuble must take his coalition partner seriously if he hopes to secure a majority for his proposals in parliament.

Lindner urged Finance Minister Schäuble to establish as soon as possible a commission to reform the current system of value-added tax (VAT) in Germany. Reform is intended to shed light on the confusion surrounding the various standard and reduced VAT rates, and to finally resolve the controversial issue of the reduced VAT rate accorded at the beginning of the year to the country's hotel industry.

Regarding the coalition’s plans to simplify the existing system of income tax, Linder requested that Schäuble swiftly present a bill outlining the proposals, and expressed his view that there are more opportunities to simplify taxation than have so far been suggested. However, Lindner also made clear that the first priority for the coalition government must remain budgetary consolidation, noting that any losses in fiscal revenues linked to tax simplification must be limited.

Alluding to the fact that the government has designated EUR500m for any tax simplification measures, Lindner also acknowledged that it not currently sensible to discuss specific volumes or timeframes for further tax relief.

Emphasizing the need to pursue a growth-orientated policy to create scope for tax cuts, Lindner stated that over the course of the legislative period it would be both sensible and feasible to support good economic growth by implementing additional tax cuts for businesses and individuals.

In accordance with the country’s debt brake rule enshrined in basic law, Finance Minister Schäuble has the task of significantly reducing new debt in Germany over the course of the next year. German Chancellor Angela Merkel recently announced that there is currently no scope for tax cuts in Germany, certainly for the rest of this year and for next year.

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