Leading German Economist Calls For Immediate Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

04 November 2008

Given the current economic crisis deeply affecting Germany, Michael Hüther, Head of the German Economic Institute, has urged the government to implement drastic reductions in tax with immediate effect – starting with the abolition of the solidarity tax, currently imposing a huge burden on both individuals and businesses alike.

Vehemently denouncing selective government measures aimed at granting aid to individual industries, such as the German car industry, Hüther stresses that the first step to boost the German economy and reassure concerned citizens, should be to exonerate businesses and individuals from the Solidaritätszuschlag surtax.

Introduced in 1991 in the wake of reunification, and designed to finance economic development in former Eastern Germany, the tax is currently levied on both personal and corporate income. According to Hüther, abolishing the tax would provide around EUR12.5bn in tax relief, which could be felt by all from January next year.

Hüther has also called for the European Central Bank to reduce interest rates to around 3% as quickly as possible.

The German cabinet is expected to discuss proposals for a EUR50bn economic stimulus package at a meeting on Wednesday. It is expected that the package will feature tax cuts or rebates in some form, although Chancellor Angela Merkel has insisted that any stimulus measures should be narrowly-targeted and able to be put in place very quickly. The automotive industry, one of Germany's largest employers, is expected to be one of the main beneficiaries of any tax cuts.

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