Coalition agrees to tax cuts in 2013

The changes will lower the income tax burden by between €6 billion to €7 billion. But Schaüble said, citizens should expect “no dramatic relief” because the plan is meant to address inefficiencies in the tax system known as “bracket creep” or “cold progression” in German.

The pro-business Free Democratic Party (FDP) and centre-right Christian Democratic Union (CDU) want to stop rising salaries due to inflation from pushing people into higher tax brackets, since this increases the income tax they pay even if their real income stagnates.

“We’re starting start with the phaseout of the cold progression and entering permanent tax fairness,” Rösler said, explaining that under the plan citizens will get back the taxes “cold progression” cost them between 2010 and 2012.

Officials will monitor salaries and inflation rates and adjust taxes every two years as necessary, according to the plan.

It could still run into problems however, as the leader of the Christian Social Union of Bavaria (CSU), the sister party to the CDU and the third member of the governing coalition, said he has not yet agreed to the tax changes.

“There’s no agreement with us,” said CSU head Horst Seehofer, adding the centre-right coalition would discuss “the entire financial tableau” during a meeting on Friday.

Although the CDU has said it supports lower tax rates, it has been the FDP that has really been agitating for reductions over the past few years.

The party had to back away from earlier demands for more aggressive tax reform because of the federal government’s budgetary consolidation efforts took priority.

But this summer, the FDP threatened to block Chancellor Angela Merkel’s 2012 budget unless deeper tax cuts could be agreed upon.

DPA/DAPD/The Local/mdm