The most important aim of the grand coalition is a fundamental overhaul of state spending, which means a revamped tax system and financial incision for the man on the street.
Every cent counts in Germany's new-look tax system
The plan is to do away with numerous tax breaks, thus generating a total of 18.4 billion euros ($21.6 billion) for state coffers between 2006 and 2009. And pretty much everyone from commuters to tenants, investors to families and constructors to savers is likely to feel the tighter pinch of the new German government.
The home ow n er allowa n ce, which is basically a gift from the state to those people who buy their own properties, will cease to be as of Jan. 1, 2006. But because it is paid out over a period of several years, the financial effects of its abolition will not be felt for some time to come.
As of next year, employees will no longer be entitled to a tax-free allowance on redu n da n cy payme n ts, nor will they be able to offset an accountant's fee. But private households will be granted some opportunities to offset the cost of childcare and work done to their home. From 2007 it will only be possible to offset the cost of an office space at home if it is the main place of work.
From 2007 workers will no longer be allowed to offset the cost of travel to the workplace if their journey spans a distance of less than 20 kilometers (12.4 miles). Commuters who travel any further than that will be able to claim 30 cents per kilometer. It is estimated that while the cuts will cost average-earning commuters up to 400 euros per year, they will, in the medium term, bring the state an increased annual income of 1.1 billion euros.
Tax exemptio n o n savi n gs will be reduced from 1,370 euros to 750 euros for single people, and from 2,740 euros to 1,500 euros for those who are married.
Additional pay for n ight shifts a n d public holidays will remain tax free, but the social security allowance will be restricted to a basic hourly rate of 25 euros (currently 50 euros). This will glean a further 500 million euros for the state.
The blanket rate social security co n tributio n s for those in low-paid, part-time mini-jobs will go up from the current 25 percent to 30 percent.
Family allowa n ce and the tax breaks available to people with children will only apply until the child's 25th, rather than 27th, birthday.
Mi n ers will also be stripped of tax allowances on bonuses they receive when they marry or have children. Companies will no longer be allowed to set aside reserves for a n n iversary bo n uses and will be required to dissolve current reserves.
The depreciatio n of buildi n gs housi n g re n ted flats will be cut from Jan. 1, 2006.
There are plans to introduce a 20 percent flat-rate capital gai n s tax for share-holders and real estate owners. But the tax will differentiate between old and new cases. At present, investors can sell their shares after one year, and property in which they have not lived themselves, after 10 years without being stung by capital gains tax.