DThe Greens reject Finance Minister Christian Lindner’s proposal to compensate for cold progression. “Tax relief in the billions, from which many earners benefit three times as much in absolute terms as less earners – that is not up to date,” said the financial policy spokeswoman for the Greens parliamentary group, Katharina Beck, the editorial network Germany. “It would be the other way around: Strong shoulders would have to carry more than those with a low income and not be disproportionately relieved.”
She also criticized the FDP leader’s rejection of an excess profit tax: “In terms of financial policy, it is unclear how the desired debt brake is to be adhered to with this further proposal worth billions if at the same time the possibilities for additional income are blocked, such as by an excess profit tax.”
Green Group Vice President Andreas Audretsch also criticized Lindner’s plans. “High and highest income groups would receive more than three times as much as people with low incomes, who actually need the relief most urgently,” he told the German Press Agency. In addition, people with very small incomes would not be relieved at all because they paid no income tax below the basic allowance.
Linder’s plans in the FAZ
Lindner wants to relieve citizens of the high inflation with a tax cut of more than ten billion euros. “Employees and low earners, pensioners and the self-employed, students with taxable part-time jobs and above all families benefit,” he wrote in a guest article for the FAZ. In addition to an adjustment of the benchmarks in the income tax rate, child benefit and the child allowance are also to be increased.
According to information from the German Press Agency from ministry circles, the so-called Inflation Compensation Act provides for child benefit to increase in two stages and also be standardized. In the coming year, there will be 227 euros per month for the first, second and third child. From the fourth child, 250 euros are added to the account. In 2024, the rates for the first to third child are to be increased again, to 233 euros.
At the same time, Lindner’s draft provides for an increase in the basic allowance, i.e. the income up to which no tax has to be paid. The Finance Minister wants to raise this limit from the current EUR 10,347 to EUR 10,632 in the coming year and EUR 10,932 in 2024.
Against the cold progression
Other key values of the tax rate will also be shifted in order to compensate for the effect of the cold progression. This is a type of creeping tax increase, when salary increases are eaten up by inflation but still result in higher taxation. Higher taxes then apply, although purchasing power does not increase in real terms.
“A tax system that taxes people who are already suffering from high prices is not fair,” wrote Lindner. Eliminating this is “not a patronizing act, but necessary in several respects”. 48 million taxpayers benefited from his plans.
In order to mitigate the effect, the top tax rate should in future only apply to higher incomes – specifically at 61,972 euros in the coming year and at 63,515 euros in 2024. Lindner does not want to touch the limit for the even higher tax rate for the wealthy.
Who benefits more?
The plans were quickly criticized: In absolute terms, top earners benefited more from Lindner’s relief than low earners, and the planned reform was socially unbalanced.
In fact, Lindner’s plans have a greater percentage effect on low incomes, but in absolute figures people with high incomes benefit more clearly. A taxpayer with taxable income of 20,000 euros is to be relieved of 115 euros. With an income of 60,000 euros, the relief according to figures from the Ministry of Finance is already 471 euros. With even higher incomes, they remain stable at 479 euros and do not rise any further.
FDP General Secretary Bijan Djir-Sarai dismissed the Greens’ criticism as unfounded. The adjustment aims at lower and middle incomes and lowers “the tax burden of the hard-working middle”. The relief amount is capped for top earners. “The relief is fair and necessary so that people benefit from a wage or salary increase despite the high inflation and do not have to pay a higher tax burden,” said Djir-Sarai of the German Press Agency.
The Federal Statistical Office will be announcing details on the development of consumer prices in July this Wednesday. According to preliminary data, the annual inflation rate for the month was 7.5 percent. In June, consumer prices rose by 7.6 percent year-on-year and by 7.9 percent in May.
