Berlin to reimburse 3 billion euros to taxpayers

10th December 2008, Comments 0 comments

A court decision is forcing the government to revert to the former tax regime starting in January.

Berlin -- German authorities plan to reimburse 3 billion euros (3.9 billion dollars) to taxpayers in coming months, the finance ministry said Tuesday following a court ruling that officials hope will help boost consumption.

The constitutional court in southwestern Karlsruhe ruled that the elimination in early 2007 of a tax credit granted to people who travel between their homes and workplace violated the country's Basic Law or constitution.

The decision will force the government to revert to the former tax regime starting in January and to reimburse the money taken in 2007, about 3 billion euros.

For the three years from 2007-2009, public finances will be short by 7.5 billion euros as a result, the ministry said.

Finance Minister Peer Steinbrueck disagreed with the court's decision but added, "the reimbursement should be made as quickly as possible ... to give consumption an added push."

Some 20 million people who paid too much in taxes should get a refund by the end of March.

The boost comes amid a debate over how to underpin consumption in Europe's biggest economy, which is now in recession.

"I consider it absolutely essential that we reimburse the money directly to the people, given the current economic situation," Chancellor Angela Merkel said in Warsaw.

She also saw the possibility that payments could provide a boost to consumer spending.

The powerful German automobile manufacturers association VDA and trade unions quickly hailed the court ruling.

According to the finance ministry, a full-time worker who lives at least 20 kilometers from their workplace should receive an average payment of 350 euros early next year.

But the decision "should not please those who had hoped for an overall reduction in tax rates, because we will not be able to do both," warned Steffan Kampeter, public finance expert for the conservative CDU/CSU parliamentary group.

Many conservative lawmakers have pressed for lower tax rates.

Green groups criticized the ruling meanwhile, because the tax break "leads to more automobile traffic and a scattering of habitations" that harm the environment, said Michael Gehrmann, head of the environmentally-oriented car owners association VCD.


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