Tax rich to fund energy bill support, say German govt advisors
German economic experts on Wednesday proposed raising taxes on higher earners to help households struggling with soaring energy bills, but the suggestion was immediately shot down by the country’s finance minister.
The proposal by the government’s council of economic advisors would see wealthier people pay more through a “temporary increase of the top rate of tax or a very limited energy solidarity levy”.
Earlier this month, Germany presented the details of a 200-billion-euro (dollar) support package to counter the impact from rising energy costs in the wake of the Russian invasion of Ukraine.
The measures include a partial cap on the price of gas and electricity that will come into force in 2023.
The massive interventions were “justified”, the advisory group said in their annual report.
But support measures needed to be more “targeted”, with wealthier taxpayers carrying a larger share of the burden, they said.
Finance Minister Christian Lindner rebutted the suggestion, saying the “government does not intend to raise any taxes”.
“We are in a period of enormous uncertainty and further tax burdens are extremely dangerous,” he said at a press conference in Berlin.
– ‘Every billion counts’ –
Consumer prices in Germany have soared at a rate not seen in decades on the back of energy price rises, with inflation hitting 10.4 percent in October.
While the proposed tax increase would only cover a fraction of the government’s support measures, “every billion counts”, said Monika Schnitzer, head of the expert group.
Any levy could apply for around “one year”, she said, to cover the same period as the government’s relief plan.
Limiting the net outlay for support measures was a question of “generational fairness”, Schnitzer said.
“Our children shouldn’t have to pay later… for what we can already afford now.”
Relief measures should be “focused on lower- and middle-income households who otherwise could not carry the heavier burden caused by the energy crisis”, said advisory council member Achim Truger.
Neither should public finances be “overstrained”, Truger said.
The government’s current support measures meant that some people “receive too much relief” despite being better able to afford price rises, said Schnitzer.
“That is bad because we have to take on more debt than we would otherwise have to and because it drives inflation,” she said.
– Coalition debate –
The proposal is expected to spur a lively debate within Germany’s coalition government between Chancellor Olaf Scholz’s Social Democrats and the Greens on one hand, and the liberal FDP of Lindner, which has positioned itself against tax increases.
The head of the Social Democrats’ parliamentary group, Rolf Muetzenich, said the proposed levy was “very interesting”.
“We must deal with this crisis with solidarity,” Scholz said at the presentation of the report on Wednesday.
Massive support measures were warranted because they would “build trust”, he added.
The expert council also predicted that the German economy will shrink by 0.2 percent in 2023.
European governments are walking a fine line between funding energy support measures to shield their economies and the overall gloomy economic context.
To fund part of its package, Berlin plans to skim off part of the windfall profits made by some energy firms.
The British government was forced last month to abandon plans to abolish the top rate of income tax after the move sparked economic turmoil.