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Finance Minister OKs three percent inflation

German Finance Minister Wolfgang Schäuble said on Thursday that a German inflation rate of up to three percent was tolerable, despite eurozone rules setting a target of around two percent.

Finance Minister OKs three percent inflation
Photo: DPA

“In Germany, two to three percent is a range that it is still acceptable,” Schäuble told reporters when asked about a potential easing of Germany’s strict anti-inflation stance in light of the debt crisis.

However, Schäuble warned that an extended period of high prices would be going too far, saying that the Bundesbank central bank would draw a line at any retreat from price stability.

The European Central Bank (ECB), which brings together the central bank governors from all the 17 nations that share the euro, aims to keep inflation close to, but below, two percent.

Schäuble said that German inflation was currently above two percent, acknowledging that the “target was not quite met.”

His comments came after a Bundesbank economist suggested one potential way out of the eurozone crisis was to boost domestic demand in Europe’s top economy and tolerate the slightly higher German inflation this could produce.

“Germany would in this scenario have in the future an above-average inflation rate compared to the eurozone,” the central bank economist wrote.

“But monetary policy would have to ensure that the average eurozone inflation rate corresponded to the (two-percent) target and that inflation expectations remained solidly anchored.”

Germany, Europe’s top economy, has long been seen as the most hawkish of eurozone members when it comes to inflation and was the chief architect of the ECB’s price stability policies.

The country’s wariness of runaway price increases is rooted in the trauma of the hyper-inflation it experienced during the 1920s, a period of major political instability that helped pave the way for the rise of the Nazis.

The eurozone debt crisis has put pressure on Berlin to do more to boost domestic demand as a way of helping its neighbours bounce back from the slump.

Schäuble said in comments published earlier this week that Germans deserved higher pay following years of wage restraint and labour market reforms.

“By raising pay, Germany would help reduce economic imbalances in Europe,” the minister added, referring to increased demand which would suck in exports from weaker eurozone states.

Germany’s inflation in April stood at 2.2 percent, using the ECB’s preferred yardstick – the Harmonised Index of Consumer Prices.

AFP/jcw

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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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