inflation compensation
Lindner defends tax plans as “socially balanced”
Finance Minister Christian Lindner presents his plans to compensate for high inflation. photo
© Michael Kappeler/dpa-Pool/dpa
Critics believe that low earners will benefit too little from the finance minister’s proposal – and they are particularly affected by the high inflation.
Federal Finance Minister Christian Lindner has defended his plans for tax relief against criticism. “It’s socially balanced,” said the FDP leader on ZDF’s “heute journal”. “The strong shoulders will continue to bear a great burden. But they will not be burdened any more. And above all, we will ensure that people who don’t really have broad shoulders suddenly pay more taxes due to inflation.” It is a “pure inflation adjustment”.
Lindner presented his plans on Wednesday. 48 million citizens are expected to benefit from next year, with a total of more than ten billion euros at stake. In percentage terms, low earners will be relieved much more in the proposal than top earners – but in absolute numbers it looks different. The two coalition partners, the Greens and the SPD, consider this to be socially unbalanced.
The minister argued that the proposed tax cuts were capped. “The additional relief ends at an annual income of 62,000 euros – or from there there is no additional advantage.” That is about 1.5 times the median income in Germany. According to Lindner’s plans, the maximum tax relief for an individual is 479 euros in the coming year.
Low earners lose, according to Fratzscher
The head of the German Institute for Economic Research (DIW), Marcel Fratzscher, described the plans on ARD as “very unbalanced”. “70 percent of it goes to the 30 percent with the highest income,” he criticized in the “daily topics”. “People on low incomes who pay little or no income tax get practically nothing from it.” These people are particularly affected by inflation.
“A reform in which the higher earners nominally gain more comes at the wrong time,” said Veronika Grimm of the “Rheinische Post”. In principle it is correct to compensate for the so-called cold progression and to relieve the middle of society in view of the high inflation. “On the other hand, we currently need relief, primarily for those with lower and middle incomes who cannot bear the hardships caused by the price increases on their own.”
On ZDF, the FDP leader referred to other measures by the traffic light coalition aimed at people with low incomes. That’s what he called the relief packages that have already been decided, with a one-off payment for Hartz IV recipients and a heating subsidy for housing benefit recipients. He also recalled coalition plans for a reform of the housing allowance and the conversion of Hartz IV into a new “citizen’s allowance”: “We’re taking care of the people who don’t get their homes heated with the new housing allowance, and there are citizen’s allowances for the people on basic security.”
Cold progression in focus
Lindner’s plans are aimed at reducing “cold progression”. By this is meant a kind 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. In addition to an adjustment of the income tax rate, child benefit and the child allowance are also to be increased.
The German Association of Cities warned of tax losses in the billions and called for compensation for municipalities. Managing Director Helmut Dedy told the German Press Agency that Lindner’s plans against cold progression would also result in tax losses for the municipalities of around 4.2 billion euros in 2023 and 2024. “These funds are then missing from the municipal coffers, which are already shaken by the side effects of the Ukraine war and the energy crisis and are facing major budgetary risks.”
At the same time, major tasks such as more investment in climate protection and in buses and trains have to be tackled, said Dedy. “The federal and state governments must therefore ensure that the cities are provided with the necessary funds despite tax relief.”