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Germany Backs Away From Income Tax Change

by Ulrika Lomas, Tax-News.com, Brussels

06 August 2014


The German Government has rejected calls for a reform of the income tax system to eliminate so-called "cold progression" before 2017.

Cold progression, also known as bracket creep, occurs when inflationary wage increases push taxpayers into higher tax brackets. Germany's Economy Minister, Sigmar Gabriel, said on August 3, 2014, that it should be possible to tackle this anomaly before the next election in 2017 without raising other taxes.

The minister's comments follow calls from the Organisation for Economic Cooperation and Development (OECD) to introduce index-linked tax brackets in order to address the problem.

However, Georg Streiter, deputy spokesman for Chancellor Angela Merkel, said in a televised interview on August 4 that there is not enough scope in the budget to adjust the income tax system. "The budget framework needs to be right and it would be premature at this point to be spreading such hopes," he said.

Streiter dismissed Gabriel's claim that additional tax revenues generated by a new minimum wage to be introduced in 2015 would offset revenue losses incurred by the elimination of bracket creep.

TAGS: tax | business | budget | Germany | tax reform | inflation | individual income tax | Economy

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