Schauble eyes major tax cuts end-2017

Germany’s Finance Minister and Chancellor Angela Merkel’s closest ally, Wolfgang Schauble, said there could be room for tax cuts of up to EUR 15 bln in the next legislative period after the September 2017 general elections.

Campaigning is getting underway for next year’s vote and Merkel’s Christian Democrats (CDU), of which Schauble is a member, have their work cut out trying to please voters after their open-door refugee policy and increased spending on migrants has alienated some people.

The anti-immigrant Alternative for Germany (AfD) party beat the CDU in a regional election in Merkel’s home region on Sunday, a crushing defeat that she has conceded was due to her party’s pro-refugee stance, according to the EU news and policy portal EurActiv.

Speaking to the lower house Bundestag on Tuesday, Schauble said that employment, wages and taxes were increasing in Germany, while tax revenues were rising, the German economy was growing and the budget was balanced.

The Munich-based Ifo economic institute said earlier that Germany’s current account surplus will probably hit a new record of EUR 278 bln this year, overtaking that of China again to become the world’s largest.

Schauble said that while Germany would need to put funds towards integrating the hundreds of thousands of migrants who arrived last year and on domestic security, there would be room for manoeuvre on taxes.

“After 2017, in the next legislative period, we’ll have room to cut taxes by around EUR 15 bln,” he said. He added that these tax cuts should be aimed at people on low to medium incomes.

Merkel has also said that Germans would get tax relief in the next legislative period.

Some Germans, particularly in poorer eastern regions, are angry that the government is spending vast sums on migrants, with data on Monday showing that state spending on benefits for migrants climbed by around 120% in 2015 to almost EUR 5.3 bln.

Schauble also said he would seek to correct “cold progression” or bracket creep in the tax system, from January 1, 2017.

Thresholds in Germany’s progressive tax system are not automatically adjusted for inflation so if someone gets a pay rise, they can find they end up with a net pay cut.

Schauble said he would aim to reduce the burden caused by “cold progression” by around EUR 2 bln.

In July, Schauble had warned of an EUwide tax war, with states cutting their corporate tax rates, in the wake of Brexit and the UK’s announcement it will cut rates to 15%.

The outgoing Chancellor of the Exchequer, George Osborne, had told the

that he planned to cut the UK business rate from its current 20% to 15%, in an attempt to prop up the economy following the vote to leave the EU.

However, Osborne had put no specific timetable on the plan, saying only that Britain should “get on with it” in order to prove the UK was still an attractive and viable business destination outside the bloc.

Schauble had responded, “We have no intention to start some sort of ‘race to the bottom’.”

A 15% corporate tax rate, if it is introduced in the UK, would be the lowest of any major economy.

Ireland’s, at 12.5%, is currently the lowest in the 28-member bloc.

According to Reuters, the head of tax at the OECD had warned, in an internal memo, that the fallout from Brexit “may push the UK to be even more aggressive in its tax offer” but that further steps in that direction “would really turn the UK into a tax haven type of economy”.

Berlin is planning to keep its budget balanced or in surplus at least until 2020.