A new package of measures with priority on tax reductions was announced in Berlin by Finance Minister Christian Lindner. The focus is on middle incomes.
The main intervention of the finance minister concerns income taxation. THE Christian Lindner wants to compensate for the burden caused when, due to inflation, the nominal income increases, but not the real income, with the result that the taxpayer moves up the scale and pays more to the tax office, so he has less money left, than the initial increase to his income. To address the problem, Linder is gradually raising the tax-free limit to 10,933 euros per year. An indirect consequence will be relief for middle and higher incomes, as from 2023 the upper rate only applies to taxable income above €61,972 per year (compared to €58,597 today).
With realism, Christian Lindner, who leads the Liberal Party (FDP), states that this is not actually “relief” in the usual sense of the term, but “compensation for the additional burden due to inflation”, from which it is nevertheless expected to benefit 48 million citizens in the coming years. In fact, this is an older pre-election promise of the FDP. The Lindner measures also foresee an increase in child benefit, which from 2023 amounts to 227 per month. Otherwise, the finance minister rejects horizontal benefits. In fact, he declares his opposition to the extension of the “9 euro ticket” for public transport, which is valid until the end of August.
Criticism from the coalition parties
The first reactions from the other two parties of the governing coalition in Berlin are not particularly encouraging. The vice president of K.O. of the Social Democrats (SPD) Achim Post considers that “the measures proposed by the Minister of Finance particularly relieve high incomes and are not balanced with social criteria, so improvements are needed”. The criticism of the co-ruling Greens is even more intense: “The tax cuts of billions are unreal,” warns Andreas Outrets, vice-president of the “green” parliamentary group in the Bundestag. During the press conference, Christian Lindner admitted that in today’s difficult times “it is important to maintain internal demand in our economy”, but he also used this finding as an argument for “not increasing taxes any more” and not to justify horizontal benefits.
The truth is that in the first half of 2022 alone, the state’s VAT revenue has increased by 29 billion euros compared to the corresponding period in 2021. This obviously means that, one way or another, domestic demand remains at high levels. The Party of the Left (Die Linke) estimates that by the end of the year the additional income will reach 60 billion and proposes to “return it to the citizens”. Responding on Wednesday to a related question, Christian Lindner confirms the additional income of 29 billion, but recalls that benefits of more than 30 billion have already been approved, with the result that there is no scope for new reliefs. He even repeated his commitment that the “debt brake” will be respected in the 2023 budget.
Inflation persists
Inflation in Germany persists at high levels, but with a downward trend. According to today’s data for the month of July, inflation is at a rate of 7.5% on an annual basis (against 7.6% in June and 7.9% in May). The increase in energy prices is particularly noticeable, reaching 35%. In fact, the price of heating oil has doubled compared to July 2020. In food, the increases reach 14.8%. It is estimated that the government interventions that are valid for the whole summer, such as the “9 euro ticket” and the reduction of fuel taxes, had a decisive contribution to the containment of inflation.
DW – Giannis Papadimitriou
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