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Germany's Grand Coalition Blocks Pension Contribution Cut

by Ulrika Lomas, Tax-News.com, Brussels

26 December 2013


Barely has the Grand Coalition accord been signed, than the ruling Christian Democratic Union (CDU) and Social Democrats (SPD) have blocked an agreed reduction in the country's pension insurance contribution in 2014.

The black-red coalition Government has acted so swiftly that draft legislation, maintaining the pension insurance contribution rate at 18.9 percent next year has already been submitted to and adopted by the German Bundestag, or lower house of parliament. Furthermore, the frozen rate for 2014 has now been published in the Federal Gazette, even though the bill has not yet faced the scrutiny of the Bundesrat, or upper house of parliament.

The previous coalition Government had united on plans to lower the contribution to 18.3 percent in 2014, given that pension fund reserves are full to bursting. The reduction would have lowered the fiscal burden on both employers and employees in Germany to the tune of around EUR6bn (USD8.2bn) next year.

The incoming Government elected to u-turn on the contribution cut to generate additional funds with which to finance its election pledges.

As the Bundesrat, or upper house of parliament, is not due to vote on the bill until mid-February, the law will enter into force retroactively. Unsurprisingly, German employers' unions have denounced the action as "constitutionally questionable."

TAGS: tax | law | insurance | employees | corporation tax | legislation | tax rates | Germany | tax breaks | individual income tax

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