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Government approves €8.5-bln fiscal package

The German government on Monday adopted a package of fiscal measures worth €8.5 billion ($12.7 billion) including tax cuts and benefits aimed at underpinning economic growth.

Published: 9 November 2009 18:24 CET

Government approves €8.5-bln fiscal package

Photo: DPA

The new centre-right coalition formed last month adopted an “accelerated growth law” that is expected to be quickly by parliament.

The bill includes a lowering of value-added tax (VAT) in hotels and restaurants to 7.0 percent, a reform of business inheritance laws and some cuts in corporate taxes.

Companies will be the main beneficiaries but families will also receive an additional €20 per month for each child.

The measures are expected to take effect on January 1, and constitute “positive long-term support for growth,” a Finance Ministry statement said. German authorities have decided to allow the national deficit to grow as they try to get Europe’s biggest economy back on track towards sustainable growth.

Chancellor Angela Merkel’s new cabinet has also said it would reform the tax system and cut taxes by €24 billion starting in 2011, but a spokesman for Merkel was more reserved on that question.

“We will focus initially on putting the first part into action,” the spokesman said, before looking at further reforms in mid 2010.

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Beskæftigelsesfradraget: What is Denmark's employment allowance?

What is the employment allowance?

The Beskæftigelsesfradraget (from beskæftigelse, meaning employment, and fradrag, meaning rebate) was brought in by the centre-right Liberal Party back in 2004, the idea being that it would incentivise people to get off welfare and into a job.

Everyone whose employer pays Denmark’s 8 percent AM-bidrag, or arbejdsmarkedsbidrag, automatically receives beskæftigelsesfradraget. Unlike with some of Denmark’s tax rebates, there is no need to apply. The Danish Tax Agency simply exempts the first portion of your earnings from income taxes.

In 2022, beskæftigelsesfradraget was set at 10.65 percent of income with a maximum rebate of 44,800 kroner.

How did the government agree to change the employment allowance in its coalition deal?

In Responsibility for Denmark, the coalition agreement between the Social Democrats, the Liberals and the Moderate Party, the new government said it would set aside 5 billion kroner for tax reforms.

Of this, 4 billion kroner was earmarked for increasing the employment allowance, with a further 0.3 billion going towards increasing an additional employment allowance for single parents.

According to the public broadcaster DR, the expectation was that this would increase the standard employment allowance to 12.75 percent up to a maximum rebate of 53,600 kroner.

How might this be further increased, according to Børsen?

According to a report in the Børsen newspaper, the government now plans to set aside a further 1.75 billion kroner for tax reforms, of which nearly half — about 800 million kroner — will go towards a further increase to the employment allowance.

The Danish Chamber of Commerce earlier this month released an analysis in which it argued that by raising removing all limits on the rebate for single parents and raising the maximum rebate for everone else by 20,300 kroner, the government could increase the labour supply by 4,850 people, more than double the 1,500 envisaged in the government agreement.

According to the Børsen, the government estimates that its new extended allowance will increase the labour supply by 5,150 people.

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