Determined to put a stop to the very high inflation which is undermining the purchasing power of the Germans, the Minister of Finance, Christian Lindner, announced on Wednesday that Berlin was going to adopt a series of tax measures amounting to 10 billion euros in 2023 to mitigate the surge in prices. Inflation reached 7.5% over one year in July, down from June but it is still at a very high level due to the war in Ukraine.
Adjustment of the tax scale
In detail, Lindner certainly plans to increase the amount of family allowances but also to adjust the scale of income tax, in this case, by raising the level from which the maximum rate of 42% income tax will apply.
Stressing that the government was “forced to act” in the face of rising prices, particularly those of energy, the minister specified that some of these measures will also be intended to compensate for the “multiplier effect”, or “cold progression”. . This mechanism penalizes all those who have benefited from a salary increase, precisely to compensate for inflation, and who find themselves having to pay additional taxes, which lessens or cancels the desired effect of improving purchasing power. .
And this is not a niche phenomenon: if nothing is done, some 48 million people will suffer a tax increase from January 2023 because of this phenomenon, Lindner said.
Now is not the time to raise taxes
For the minister of the coalition government of Olaf Scholz who is worried regarding the increase in the daily life of his fellow citizens, in particular by “the increase in the prices of gas, energy and foodstuffs”, it is not no time to raise taxes:
“For the state, to benefit (from an increase in tax revenues) at a time when daily life has become more expensive (…) is not fair and also dangerous for the economy”, he said. admitted at a press conference.
“Our country’s economic prospects have also become more fragile and economic growth forecasts need to be revised downwards,” he added.
Previous measures have not yet shown their effectiveness
The government has already adopted measures totaling 30 billion euros to support purchasing power, including temporary measures to reduce household energy bills such as a “discount at the pump” and a “ticket at 9 euros” per month valid in all public transport except high-speed lines until the end of August.
But autumn and winter promise to be daunting in Europe’s main economy due to the energy crisis “still to come for the economy”, according to Economy Minister Robert Habeck, who predicts “a difficult winter “.
This autumn, the increase in energy prices will be passed on to the end consumer
The Germans will see their heating and electricity bills soar in the fall with the government’s decision to allow the passing on of the rise in energy prices to the end consumer.
Berlin expects a 2.2% increase in German Gross Domestic Product (GDP) this year, but the Bundesbank, the central bank, is more cautious with an estimate of 1.9%.
Growth remained flat in the second quarter, weighed down by the acceleration of inflation in the wake of the war in Ukraine. This is one of the poorest performances in the euro zone from April to the end of June.
This deadly conflict, which began on February 24 with the invasion of Russian troops, put an end to the rebound in economic activity that began a year ago following the historic recession caused by restrictions linked to the Covid-19 pandemic.
(with AFP)
