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New wave of tax relief comes into force

The New Year ushered in a tax relief package in Germany worth several billion euros, the first realisation of a campaign pledge made by Chancellor Angela Merkel's new government.

Published: 2 January 2010 13:50 CET

New wave of tax relief comes into force

Photo: DPA

All German income tax brackets changed on January 1, substantially relieving many citizens. The bracket for the top 42 percent rate of income tax was raised from €52,552 to €52,882 a year, while the top tax-free income deduction was raised from €7,834 a year to €8,004 for single people.

The lowest income tax rate of 14 percent now applies to those earning €8,005 and more. On top of this, certain health and care insurance payments can now be set off against tax.

Siblings, nieces and nephews have been relieved of inheritance tax, and sales tax for hotel stays has been reduced from 19 percent to 7 percent. Considerable reforms in business tax have also come into force.

The annual child tax deduction has been raised from €6,024 to €7,008 and the government subsidy for children, Kindergeld, has been increased €20 more per child every month. The state will now pay €184 a month each for the first and second child, €190 a month for the third, and €215 each for any more children.

The annual income limit at which statutory health insurance is mandatory has also been raised from €48,600 to €49,950.

There have also been contribution increases – top-earners must now pay €18 a month more in social security contributions. This is part of a regular yearly increase in the standard bracket by which contributions are determined.

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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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