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Germany to take on less debt than projected

The German federal government won’t have to take on nearly as much debt in this year as previously feared, a media report said on Tuesday.

Germany to take on less debt than projected
Pennies from heaven! Finance Minister Wolfgang Schäuble. Photo: DPA

Government coalition sources told daily Süddeutsche Zeitung that they plan to stick with their record austerity plan, but thanks to unexpectedly higher tax revenue, lower labour market costs and the proceeds of mobile phone licenses, the 2010 deficit will be up to €20 billion less than thought, the paper said.

The budget deficit for this year is now expected to be between €60 and €65 billion, while the situation in 2011 could see debt of €55 billion – compared to previous projections of almost €72 billion.

The surprising budgetary development has reduced the savings pressure on Chancellor Angela Merkel’s conservative Christian Democrats and their junior coalition partners the pro-business Free Democrats, but only a bit, the paper said. A new debt limit set into German basic law means the Finance Ministry must still bring debt down to €8.5 billion by 2016.

Theoretically the centre-right coalition could avoid some of the controversial savings measures planned for next year, but budgetary spokesperson for the CDU, Norbert Barthle, rejected the idea.

“It is right that the cabinet wants to begin with the savings already in 2011,” he told the paper. “It would be a fatal signal if, in the first year that the debt limit takes hold, we were to avoid it only because the situation was a bit better than expected.”

Instead Barthle encouraged coalition leaders to put the increased tax revenue towards lowering new debt, the paper said.

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TAXES

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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