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Berlin Institute Champions Windfall Tax On Wealth

by Ulrika Lomas,, Brussels

18 July 2012

Germany’s largest economics research institute DIW has recently advocated that a windfall tax on wealth be introduced, insisting that this would serve to significantly reduce state debt in Europe without adversely affecting consumption.

According to DIW calculations, a 10% tax imposed on individual net private wealth in excess of EUR250,000 (USD307,220) or EUR500,000 for married couples in Germany, affecting the richest 8% of the population, would serve to generate around EUR230bn for the state, corresponding to approximately 9% of gross domestic product (GDP).

Underlining the need for the private sector to be involved in reducing public deficits in the long-term, the institute states in its release that imposing a similar levy in other debt-ridden states in Europe, including Spain, Greece and Italy, would also yield much-needed additional and considerable revenues.

To limit costs associated with tax collection as well as any cases of hardship, the institute recommends that a high tax-free allowance be accorded, particularly as regards company assets, to take into account the liquidity and financing needs of smaller companies.

The institute stresses that the advantage of a one-off tax on wealth is that it is difficult for individuals to circumvent the levy. Such a measure would also serve to reduce the increasing disparity in the distribution of wealth, the institute adds.

Defending the proposals, DIW expert Stefan Bach points out that a tax on large private wealth could serve to stabilize state finances in Europe, an important step towards consolidating public budgets and facilitating growth-enhancing reforms. Bach highlighted the fact that there are numerous examples in history where one-off taxes on wealth have been imposed in crisis situations.

TAGS: individuals | tax | investment | economics | gross domestic product (GDP) | Germany | Greece | Italy | Spain

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