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Coalition agrees to tax cuts in 2013

After weeks of disagreement, Germany’s center-right government has agreed on cuts to taxes and social security contributions, although full details are to become known later this year.

Published: 4 July 2011 09:14 CEST
Coalition agrees to tax cuts in 2013
Photo: DPA

The tax cuts reportedly will target low and middle income earners and take effect by the 2013 elections – possibly in time to help help boost the fortunes of the government’s troubled junior coalition partner, the pro-business Free Democrats (FDP).

“We now have a timeframe but we will probably set the size in autumn,” FDP General Secretary Christian Lindner told public broadcaster ARD on Monday. “We have to see how tax revenues develop before we can determine the amount we have…to lower the tax burden.”

Any cuts could still run into stiff opposition as many German politicians – on both the right and the left – have expressed deep reservations about cutting taxes.

The final proposal is circulating among leading politicians and is set to be officially approved by Chancellor Angela Merkel’s cabinet on Wednesday at the same time that a government budget for next year will be discussed.

It immediately came under criticism by the centre-left Social Democratic Party (SPD). SPD parliamentarian Joachim Poß joked that Merkel and her allies were trying to play “Santa Claus” right before the summer break.

The decision comes as Germany’s economy is booming, creating some breathing room to cut taxes.

According to the proposal, the cuts will ensure “all citizens can participate in the upswing” and create “more financial freedom” for citizens.

The FDP sees this as essential to maintaining Germany’s economic recovery by increasing consumption and investment by regular people.

The announcement comes as somewhat of a surprise because it appeared the governing coalition would never agree on the issue.

Though the FDP has long been pushing for major tax cuts, leading members of Merkel’s conservative Christian Democrats (CDU) seemed reluctant to agree.

For example, Finance Minister Wolfgang Schäuble emphasized last month that “we don’t have a lot of leeway in the budget for tax cuts.”

DAPD/DPA/The Local/mdm

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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?

Published: 30 October 2023 15:21 CET
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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