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Merkel reportedly promises FDP tax cuts

German Chancellor Angela Merkel has reportedly promised her junior coalition partners the Free Democrats tax cuts for the middle class ahead of the next general election in 2013.

Published: 22 June 2011 10:40 CEST

Merkel reportedly promises FDP tax cuts

Photo: DPA

According to sources within Merkel’s centre-right coalition on Wednesday, her conservative Christian Democrats and the pro-business FDP plan to announce next month their intention to lower the burden on taxpayers by up to €10 billion ($14 billion).

The business daily the Financial Times Deutschland reported earlier that Merkel had agreed to the tax cuts as a concession to the new leader of the Free Democrats, Economy Minister Philipp Rösler. The FDP has long pushed for lower taxes and is currently wallowing at all-time lows in opinion polls.

The cuts will reportedly be targeted to help the middle class and small to mid-sized businesses known as the Mittelstand and could take effect just before the 2013 election.

However, there could be pressure from Merkel’s conservatives to put budgetary consolidations ahead of cuts aimed to help boost the flagging FDP’s fortunes.

And any tax cuts would require the approval of the upper house of parliament, the Bundesrat, where the centre-right coalition no longer has a majority. It would therefore need the support of the centre-left opposition to push tax code changes through, but the FTD reported that members of the Social Democrats had already expressed scepticism for lowering taxes.

DPA/The Local/mry

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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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