Wide Support for New Tax Proposal

After weeks of heated debates and fall-outs over tax hikes and the introduction of the controversial wealth tax, Germany’s leaders, both in the government and opposition, seem to be in broad agreement over the latest proposal making the rounds.

On Monday, Chancellor Schröder, in an effort to offset a revenue shortfall, unveiled a unitary 25 percent flat tax rate on interest income.

The 25 percent tax on interest is considerably lower than the current taxation rates. Interest is currently taxed at the same rate as an individual’s income in Germany, which is up to 48.5 percent.

Amnesty for tax evaders

Speaking in Berlin on Monday, Schröder also disclosed details of a tax amnesty for tax evaders to encourage the repatriation of undeclared savings abroad.

Citizens who get their illegal money back to Germany from tax havens such as Switzerland and Liechtenstein till the end of 2003 will be charged a tax rate of 25 percent. Those who get their undeclared money back to Germany by June 30, 2004, will be taxed at a rate of 35 percent.

The chancellor expects returns in the range of 100 billion euro in the period. Schröder said that there was a high degree of tax-evasion in the country, the reasons for it being an unattractive tax environment in the country and national and international deficits in monitoring tax payments.

Details of the amnesty plan still have to be ironed out. Dietrich Austermann, the CDU finance expert has expressed doubt. "I’m not sure whether it’s fair to belatedly reward tax evaders," he said.

Opposition parties given green signal to new tax

The planned savings-tax scheme has been welcomed by the conservative opposition parties, who signaled their support for the measure over the weekend.

The party leader of the Christian Social Union (CSU) Edmund Stoiber (photo) and the deputy parliamentary group leader of the Christian Democratic Union (CDU), Friedrich Merz spoke of a "step in the right direction".

The opposition’s support has also raised hope that the current Social Democrat-Green government might see the tax scheme being passed in the Bundesrat or upper house of parliament, which is dominated by the conservatives.

"Citizen-friendly and unbureaucratic"

Chancellor Schröder has described the savings-tax scheme as "citizen-friendly and unbureaucratic" and has pointed towards countries like Austria as a model, where the tax is in place.

Most finance experts agree that the savings-tax scheme is the best alternative. The banks transfer the tax on interest income directly to the tax office, the tax rate is moderate and the tax-payer is spared the hassle of the current system of an order for exemption from tax and then balancing it out in the yearly wage tax or income tax declaration.

Wealth tax debate shows signs of slow-down

The latest SPD tax proposal has also shown encouraging signs of bringing to an end the debate on the reintroduction of the controversial wealth tax which has seen weeks of wrangling in government ranks.

On Monday, Chancellor Schröder said that he considered the wealth tax debate to be over. He also said that the revenues from the savings tax would be shared by the central government, the states and local authorities to help plug budget deficits and shore up the education sector.

The wealth tax - which foresees a 1 percent tax on companies whose assets exceed 2.5 million euro and individuals who own more than in million euro in property, cash and investments - was ruled unconstitutional and abolished in 1997.

Vocal advocates of the introduction of the wealth tax, Sigmar Gabriel, the premier of Lower Saxony and Peer Steinbrück, premier of Northrhine-Westphalia, both of the SPD, have announced that they would drop the clamor for the wealth tax if the government came up with a good concept for the savings-tax scheme.

Gabriel (photo) has described the government’s initiative with the savings tax as a "unbelievably courageous step" and has said he will support the plan if it actually increases state revenue as well.

Mixed signal from trade unions

Germany’s powerful labor unions have reacted guardedly to the government’s latest tax plan. The service industry union ver.di and IG Metall have urged both Gabriel and Steinbrück to stick to their demand for the introduction of the wealth tax.

Vice president of ver.di, Margret Monig-Raane said that the planned savings tax would only "relieve the wealthy instead of making them more responsible."

Member of the executive board of The Confederation of German Trade Unions (DGB), Heinz Puthammer on the other hand, welcomed the Social Democrat-Green government’s latest initiative in a newspaper interview. He said that the unions were ready to support the government’s plans, but rejected an amnesty for tax evaders.

Chancellor Schröder’s government has come under fire in the past month for reneging on electoral promises and introducing a rash of tax hikes.

Germany’s business leaders are also said to be upset about the constant changes in tax policy and the government’s inability to tackle structural problems such as a rigid labor market, an overstretched pensions system and an underfunded health care system.