Germany's Seehofer Challenges FDP Tax Model

by Ulrika Lomas, Tax-News.com, Brussels

10 November 2009

In his latest challenge, the leader of Germany’s Christian Social Union (CSU), Horst Seehofer has raised questions over plans by the Free Democratic Party (FDP) to introduce a graduated system of income tax rates.

According to Seehofer, replacing the country’s current system of linear income tax rates with a graduated system may serve to increase the tax burden for some individuals.

Germany’s ruling Coalition parties, the Christian Democratic Union (CDU), the Christian Social Union, and the Free Democratic party, had agreed to introduce a graduated system of income tax rates, and to implement tax relief measures for low- and middle-income earners, as part of their pact.

However, despite a binding agreement in place, Horst Seehofer has publicly stated that there is a huge difference between initiatives that are drawn up as a basis for an agreement and actual legislation.

Regarding the issue of how many income tax rates should be introduced, Seehofer is convinced that a tax model comprising just three income tax rates, as advocated by the FDP, is unrealistic. Indeed, Seehofer has also questioned the FDP’s proposal to reduce the top rate of income tax to 35%, from the current rate of 45%.

Calling for these issues to be resolved at the beginning of May, following state parliamentary elections, Seehofer emphasized that, although the parties have resolved to govern the country together, the political rivalry between the two parties has by no means been eradicated.

In a bid to calm tensions, Germany’s Chancellor Angela Merkel has proposed that a tax commission be set up in the spring of 2010 to discuss future tax policy. This proposal has, inevitably, been met with fierce criticism from the FDP.

The cabinet are due to meet shortly to discuss proposals for the new growth acceleration law.

Due to come into effect from January 1, 2010, the law includes plans to increase child allowance, to provide tax relief for company heirs, and to lower the rate of value-added tax in the hotel industry from 19% to 7%.

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