German tax increases approved by Bundestag

29th June 2006, Comments 0 comments

29 June 2006, BERLIN - Germany's parliament on Thursday approved a series of further tax increases including an income tax hike aimed at the rich and numerous cuts to tax write-offs.

29 June 2006

BERLIN - Germany's parliament on Thursday approved a series of further tax increases including an income tax hike aimed at the rich and numerous cuts to tax write-offs.

A so-called "rich people's tax" will raise income tax to 45 per cent from 42 per cent for singles earning over 250,000 euros (313,000 dollars) as well as for couples earning 500,000 euros annually.

The tax rise will yield less than expected extra revenue for the government, experts say. A member of Chancellor Angela Merkel's Christian Democrats said about 250 million euros in additional tax funds were expected in 2007 from the move.

Income tax rates were first trimmed back only a few years ago under former Social Democratic chancellor Gerhard Schroeder.

Also being cut is the amount of capital gains allowed before taxes have to be paid. From next year singles will have a tax-free maximum of 750 euros and married couples 1,500 euros. This is half of the present limit.

A tax write-off for commuters is being tightened and will only apply to those travelling a minimum of 21 kilometres up to 30 kilometres.

Another tax write-off people who partly use their homes for work - such as teachers or journalists - is also being tightened and will only apply to those whose main business is conducted from the home.

The tax measures were all passed by parliament's lower house, the Bundestag. Final approval next week in the upper house, or Bundesrat, is viewed as certain by the government.

Earlier this month, Chancellor Merkel's grand coalition government won approval for the biggest tax rise in post-war German history under which value added tax will increase next year to 19 per cent from the current 16 per cent.

There are widespread fears among economists that the tax rises - along with threatened increases in health coverage costs - will choke off Germany's economic upswing which emerged this year after five years of stagnation.

Optimistic projections see German growth at 2 per cent this year. But most analysts expect a rate of 1 per cent or less for 2007.

DPA

Subject: German news

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