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CDU plans minor tax reform as growth surges

The surprisingly strong economic recovery in Germany has Chancellor Angela Merkel’s conservative Christian Democrats (CDU) planning small tax reforms worth some €500 million, a media report said on Monday.

CDU plans minor tax reform as growth surges
Photo: DPA

CDU parliamentary group leader Volker Kauder told daily Financial Times Deutschland that the party had opened itself to the new measures following last quarter’s record growth figures, when the economy grew by 2.2 percent.

Among reforms would be suggestions recently presented by state finance ministers, he said.

Deputy leader of the CDU’s economic committee Christian von Stetten is working on the plan and told the paper that reforms were necessary.

“Now we must push through the overdue tax simplifications because the money is finally there,” he said.

But he also warned that tax reductions would be small.

“Our proposals for tax simplification will cost the nation, states and communities only about €500 million,” he told the paper.

The reforms will likely be set in motion within just a few months, he added.

The move could be an attempt to head off calls by the Christian Democrats’ junior coalition partner, the pro-business Free Democrats for deeper tax cuts.

Germany’s economy has bounced back from the worldwide financial crisis much sooner than anticipated, and in the second quarter of this year it notched up the fasted growth since reunification in 1990.

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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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