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Germany tax cuts

June 28, 2010

Germany, on the advice of economists, has taken drastic action over the last ten years to reduce its corporate tax rate, slashing it almost in half. Individual taxpayers, on the other hand, have not fared so well.

Euro currency sign embedded in a life ring
Germany has cut taxes to save its economyImage: AP Graphics/DW

Data published on Monday by the European Union Statistical Office, Eurostat, showed that Germany has sharply reduced the tax burden on business and industry, cutting corporate taxes from 51.6 percent in 2000 to 29.8 percent in 2010 - a drop of almost 22 percent.

Germany's reduction was part of an overall EU trend to make the bloc's diverse economies more competitive, with average corporate tax rates across the continent falling from 31.9 percent to 23.2 percent in the same ten-year period.

Other major economies, such as Britain, France, Italy and Spain also cut their rates, although not as dramatically as Germany.

"Corporate income taxes and taxes on labor harm growth," the EU's economics commissioner, Olli Rehn said just last month.

EU Economics Commissioner Olli Rehn
Taxes harm growth, says EU Commissioner RehnImage: AP

Personal income tax rates have climbed

However, Germany only cut individual withholding and income tax rates, on average, by 1.5 percent, from 40.7 percent to 39.2 percent in the last ten years.

Income tax rates remain highest in Sweden, Belgium and the Netherlands, ranging from 52 percent (Netherlands), to 53.7 percent (Belgium) and 56.4 percent (Sweden).

Income tax is lowest, according to Eurostat, in Bulgaria (10 percent) and Lithuania and the Czech Republic (both 15 percent).

Taxes overall are steepest in Denmark and Sweden where tax ratios approach 50 percent of gross domestic product, or GDP, and lightest in Romania, Latvia, Slovakia and Ireland, where tax revenues are only 30 percent of GDP.

But, due to austerity measures and a still wobbly economic recovery, European governments - and in particular Germany - are weighing the prospects for reversing the tax-cut trend.

Author: Gregg Benzow
Editor: Rob Turner

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