HEAVY BURDEN

Germany Takes Silver in High-Tax Olympics

Steuererklärung
Germany's tax burden is second to one. Source: DPA

A new report puts Germany second in the world rankings for the overall tax burden on individuals. In 2016, an unmarried German earning an average salary would have to pay 49.4 percent of his or her income in taxes and social security contributions, says the report from the Organization for Economic Cooperation and Development, or OECD.

The average comparable figure across the 35 member countries of the OECD was 36 percent of income. Only Belgium had a higher figure: there, an unmarried worker on average pay will contribute about 54 percent of gross salary to the government in some form.

It’s hardly a new problem in Germany, yet the country’s high levels of taxation are likely to be an issue in this year’s federal election campaign, especially since a booming economy means the country’s public finances have never been healthier. The federal budget has been in clear surplus for the last 2 years, in spite of the arrival of almost one million refugees in 2015.

In some departments, the German government literally has more money than it knows what to do with, struggling to find infrastructure projects on which to spend its cash.

“Taxpayers have the impression that there is money for everything, except for the people who finance the state with their taxes.”

Carsten Linnemann, head of pro-business Christian Democrat grouping

The OECD figures show a slightly less heavy burden for married people and parents in Germany. Someone married with two children, but with just one family income, would pay 34 percent of gross earnings to the state. This would still represent the ninth-highest level of payment in the OECD, above all because of high contributions for unemployment insurance, pension provision, sickness and long-term care.

In a foretaste of the looming election debate, politicians from Angela Merkel’s center-right Christian Democrats, or CDU, reacted with anger to the OECD report.

“The figures show yet again that tax reform is long overdue,” said Carsten Linnemann, who heads a pro-business grouping within the CDU. “Average earners, single parents, and families have the impression that there is money for everything, except for the people who finance the state with their taxes.”

Businesses are also pushing for changes. Responding to the figures, Ingo Kramer, the president of the Confederation of German Employers’ Associations, or BDA, said: “Another increase in this would really endanger employment and growth.” He pointed in particular to the remarkably high level of social security contributions in Germany, which represent almost two-thirds of all deductions to gross income. “Courageous structural reform has to be a top priority for all parts of the social insurance system,” he added.

Finance Minister Wolfgang Schäuble, of the CDU, has promised to make tax reform a central plank of his party’s election platform, saying that €15 billion, around $16 billion, would be available for tax cuts. For the center-left Social Democrats—the CDU’s current coalition partner, but also their main electoral rival—infrastructure investment has a much higher priority than tax cuts.

What happens on tax policy will depend very much on which coalition is returned to power after the elections. The CDU has talked up tax reform in recent elections, only for nothing much to happen once in government.

 

Martin Greive is a correspondent for Handelsblatt based in Berlin. Brían Hanrahan is an editor with Handelsblatt Global. To contact the author: greive@handelsblatt.com.

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