German VAT increase passes last legal hurdle

16th June 2006, Comments 0 comments

16 June 2006, BERLIN - A sharp increase in German value-added tax, which the government says will ease its deficit and help fund a reduction in a social-welfare levy, passed its last legal hurdle Friday with a vote in favour by the Bundesrat or upper house of parliament. Measured by revenue, the hike in VAT from 16 to 19 per cent was the biggest tax increase in modern German history. Business groups and economists have warned that the increase from January 1 next year may choke economic recovery by deterri

16 June 2006

BERLIN - A sharp increase in German value-added tax, which the government says will ease its deficit and help fund a reduction in a social-welfare levy, passed its last legal hurdle Friday with a vote in favour by the Bundesrat or upper house of parliament.

Measured by revenue, the hike in VAT from 16 to 19 per cent was the biggest tax increase in modern German history.

Business groups and economists have warned that the increase from January 1 next year may choke economic recovery by deterring shoppers from spending. Businesses are less affected by VAT because they can pass the increases on to the ultimate consumer.

Several state governments had threatened to vote in the Bundesrat against the VAT rise, but were persuaded to change their minds by an increase in federal funding for urban public transport.

The government says 2 percentage points of the hike will help reduce Germany's public deficit, which has repeatedly exceeded the 3 per cent of gross domestic product laid out in European Union rules.

The remaining percentage point will fund a reduction in premiums for mandatory unemployment insurance.

DPA

Subject: German news

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