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Tax hikes likely for majority of Germans

German taxpayers will have to brace themselves for higher rates to plug holes in the budgets of local authorities, according to research released on Wednesday.

Published: 21 August 2013 16:10 CEST

Tax hikes likely for majority of Germans

Photo: DPA

A survey from consultants Ernst & Young shows that three-quarters of local authorities are set to raise taxes and increase charges for their services either this year or next year to make up for budget shortfalls.

They surveyed 300 local authorities, 37 percent of whom plan to save money by reducing or stopping services such as street lighting as well as those for children and the elderly.

Meanwhile 31 percent of town and city halls cannot afford to pay back debts.

A third of local authorities also wanted to raise fees for children centres, while 17 percent planned to increase cemetery charges. Last year a fifth of authorities raised property taxes and in the coming year 28 percent plan to follow suit.

Despite making savings in the last year, local authorities are planning further belt tightening. Some are even looking at closing swimming pools.

Ernst & Young said in the report: “Citizens will have to prepare for a new wave of tax and fee hikes.” Cash-strapped areas will reduce their services to the legal minimum, the report warned.

But according to the consultants one way to save money might be through local authorities sharing more services, while land and property they own could also be sold.

DPA/The Local/tsb

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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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