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Coalition forced to weigh up tax hikes

German taxpayers face extra burdens as the federal government considers tax rises to tackle the gaping budget deficits forecast in the years ahead, a media report said Friday.

Coalition forced to weigh up tax hikes
Photo: DPA

Business daily Handelsblatt quoted an unnamed government source as saying that a limited group of taxpayers might have to accept paying more.

“It’s not about the introduction of a new tax like the wealth tax, rather very much about the additional burden for a reasonable group of taxpayers,” the source, described as “government representative”, told the paper.

Even leaders within the pro-business Free Democrats (FDP), who have had to curb their ambitions to cut taxes and have, in the past, ruled out rises, now admit some hikes may be necessary, the paper cited sources in government circles as saying.

It was not known where any increases might be made. Previously, leaders of both coalition partners – Angela Merkel’s Christian Democrats and the FDP – have ruled out any general increase to the sales tax.

But there was talk of evening out the inconsistencies brought about by reductions on sales tax in specific product areas, Handelsblatt reported.

“Several billion euros could be saved here,” a coalition source told the paper.

However, tax rises are still strongly opposed by many in the government.

“I am absolutely against tax increases,” said Hans-Peter Friedrich, the leader of the parliamentary group of the Bavarian conservatives, the Christian Social Union. He pointed that the centre-right coalition had not spoken of tax rises for a long time.

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Beskæftigelsesfradraget: What is Denmark’s employment allowance?

Denmark's government may soon announce changes to its tax reform plans, which will give all wage earners a bigger employment allowance. What is this and how will it affect foreigners' earnings?

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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