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SPD: Restore 45-percent investment tax

The centre-left half of Germany's coalition government has called for the old top rate of a 45-percent tax on investments to be brought back - to match standard income tax and fight the squeeze on middle incomes.

Published: 17 April 2014 11:05 CEST
SPD: Restore 45-percent investment tax
The tax privilege for investment income is unfair, says the SPD. Photo: DPA

Carsten Kühl, Social Democrat (SPD) finance minister in Rhineland-Palatinate, told the Berliner Zeitung on Thursday that banking secrecy needed to be lifted and interests and dividends needed to be taxed at a significantly higher rate.

At the moment all investment income is taxed anonymously at a blanket rate of 25 percent, well below the top rate of income tax which is 45 percent.

Kühl wants investment tax to match that, as it did before 2009, the last time that the SPD and the CDU shared a government. But banking secrecy remains the key impediment.

"We can't demand from other states that they name tax refugees to our authorities, when we aren't doing anything like that in our country," he said.

It was SPD Finance Minister Peer Steinbrück who introduced the anonymous blanket tax in 2009 to fight the loss of revenue abroad, under the slogan "Better 25 on x, than 42 on nothing."

But Kühl argues that circumstances have changed now, because more and more foreign banks are declaring their customers' interest revenues in their home countries.

"That means that there is less and less justification for privileging investment income," said Kühl.

The increased revenue should be used to counteract so-called "bracket creep" – the name given to the effect when wages only increase with inflation.

In real terms, this means that taxpayers' incomes are squeezed in real terms because increased wages mean they gradually fall into higher tax brackets.

In response to a Green Party information request in parliament, the German government admitted that cold progression means that taxpayers will pay €800 million extra in 2014, rising to €3.1 billion in 2015, €5.6 billion in 2016, and as much as €8.1 billion in 2017.

Mid-range incomes will be hit the most by the effect.

Kühl said that tax brackets needed to be altered soon to reduce the effect – not least to counter the argument of populists who want a flat rate on all tax. The government is legally obliged to produce a report on “bracket creep” by the end of this year.

SEE ALSO: Minister wants taxpayers to fund 32-hour week

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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?

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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