Germany Promises ‘Moderate’ Tax Cuts

Germany’s finance minister has said taxpayers in the country can expect a slight decrease of their tax burden after the fall general election. But he’s not willing to agree to fresh borrowing to finance the measure.

Wolfgang Schauble told German public broadcaster ZDF he would propose moderate tax cuts for low- and middle-income earners after the country’s general election in September, DW reported.

Schauble is a member of Chancellor Angela Merkel’s Christian Democrats, who are ahead of the Social Democrats, their junior coalition partner, in opinion polls.

The German finance minister has been under mounting pressure to consider easing people’s tax burden against the background of a continuously robust labor market and steady economic growth resulting in ballooning tax revenues.

Pressure has also come from the Social Democrats, who have suggested reversing some labor market and social welfare reforms that have hurt the poorer sections of society.

“We want moderate tax relief,” Schauble told ZDF reporters. But at the same time, the minister categorically rejected the idea of fresh borrowing, that is new debt, to counter-finance any tax cuts as this might violate his cherished balanced budget policy.

“Therefore, we also don’t have unlimited flexibility to cut taxes,” Schauble concluded, adding that relief measures would most likely amount to some €15 billion ($15.9 billion) a year.

Economists largely agree that this would be far too little to boost private consumption across the nation.

Schauble’s remarks on tax cuts came just a day after the Organization for Economic Cooperation and Development reported that Germany had the second-highest tax burden of all industrialized nations, only trailing Belgium.

The OECD reported on Tuesday that Germany has the second highest tax rate after Belgium when comparing 35 developed countries around the world.

The OECD calculated each country’s tax wedge—the gap between what employers take home in pay and what it costs to employ them, including personal income tax and social security contributions. Germany had a tax wedge for single, childless workers of 49.4%, behind Belgium at 54%. That means nearly half of a single person’s income goes towards taxes and social security contributions in Germany.

Meanwhile the OECD average for singles was 36%. Hungary had the third highest tax burden at 48.2%.

“Boosting the work incentives of low and middle income earners by reducing the tax wedge on labor incomes continues to be an important way of encouraging inclusive growth,” said OECD Center for Tax Policy and Administration director Pascal Saint-Amans in a statement.