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Germany's New Grand Coalition Rules Out Tax Rises

by Ulrika Lomas,, Brussels

29 November 2013

Following a marathon final round of negotiations, German Chancellor Angela Merkel's ruling Christian Democratic Union (CDU) party has finally sealed a coalition agreement with Grand Coalition partner, the Social Democrats (SPD), in which both parties pledge their commitment to no new debt or tax rises, as well as to ensuring and enforcing tax compliance.

Underscoring that both solid finances and a balanced budget are essential, the Grand Coalition emphasizes the importance of preventing new debt in the long term, and of lowering the country's debt ratio, while at the same time creating favorable fiscal framework conditions in the country's tax law for innovation and for corporate investment in Germany, to secure and increase jobs and wealth in the future. Furthermore, combating tax evasion, guaranteeing tax compliance, and consistent adherence to the debt brake rule are all vital for securing revenues, the parties stress.

In addition, the Grand Coalition members underline their determination to ensure swift implementation of a European financial transactions tax (FTT), with a wide tax base and a low tax rate, within the framework of enhanced cooperation. Such a tax should encompass as many financial instruments as possible to curb undesirable financial transactions, in particular in shares, bonds, investment shares, foreign currency transactions, and derivative contracts, the new Government insisted, while warning that the potential impact of the levy on retirement instruments, on small investors, and on the real economy must be assessed.

Highlighting the fact that effective transport infrastructure is a locational advantage, vital for the competitiveness of the German economy, the Grand Coalition vows to increase expenditure to make sure that the infrastructure in place is safe, while at the same time expanding the road, rail and waterway network where necessary. To achieve this objective, the parties intend to extend the scope of the heavy goods vehicle toll (LKW-Maut), as well as to introduce a car toll (PKW-Maut) in Germany, that is in accordance with European law. The envisaged car toll will ensure that owners of cars not registered in Germany contribute to infrastructure financing. The fiscal burden on German motorists must not be increased, however, the parties make clear.

Finally, the new Coalition has announced plans to further simplify the tax system, notably by introducing pre-completed tax declarations for all taxpayers by 2017, and to introduce a minimum wage of EUR8.50 (USD11.6) by 2017 at the very latest.

TAGS: compliance | tax | investment | tax compliance | tax avoidance | law | retirement | budget | corporation tax | Germany | tax breaks | currency | individual income tax | Europe | Tax | Tax Evasion

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