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Germany ponders tax cuts to boost growth

November 18, 2018

A slowdown in the German economy in the third quarter has raised recession fears. Economy Minister Peter Altmaier thinks a package of tax cuts and other measures are needed to shore up future economic growth.

Stock photo for tax cuts
Image: picture-alliance/imageBROKER/C. Ohde

Germany needs to introduce tax cuts and other measures to secure long-term economic growth, Economy Minister Peter Altmaier said in an interview on Sunday.

"We need clarity about relief for employees and the economy, such as the step-by-step reduction in the solidarity surcharge for everyone, less bureaucracy and more innovation," he told the Welt am Sonntag newspaper.

Employees in Germany currently pay the solidarity surcharge as an additional tax to fund reunification projects in states in the former East Germany.

Read more: Migrants from EU boosting the German economy: study

Altmaier also said the government wants to ensure that contributions to social security don't go beyond 40 percent of a person's gross salary. Ministers are also pushing for corporations to face a lower tax burden.

"Corporate income tax in Germany is now higher than in other large industrialized countries such as the US, Britain and soon France. This is a disadvantage and puts jobs at risk," Altmaier told the paper. "That is why a medium-term reduction is necessary."

Altmaier insisted the tax cuts could be funded by using half of the current increases in tax revenues as a result of a booming German economy.

Read more: German unemployment rate dips below 5 percent

Economy slows

Gross domestic product (GDP) in Europe's biggest economy fell 0.2 percent in the third quarter from the previous three months, according to data released on Wednesday by the Federal Statistics Office.

Although the economy ministry said the slowdown was only temporary due to short-term sales issues in the auto industry, some economists believe the German economy has peaked, amid several global uncertainties including a US-China trade war.

Welt am Sonntag said Altmaier now wants to get support from Finance Minister Olaf Scholz, whose left-leaning Social Democratic Party (SPD) has been resisting corporate tax cuts.

Read more: Why can't Germans stop saving money?

Poor little rich Germany

Meanwhile, the business-friendly Free Democratic Party (FDP), the fourth-largest in the Bundestag, continues to push for a reinvestment of tax revenues after making tax cuts a big issue in the 2017 federal election.

FDP budget expert Otto Fricke accused the coalition government of maintaining high social insurance transfers to finance more lucrative state pensions.

Speaking to Welt am Sonntag, he called for spending to be transferred towards "real future investment in education, research, digitization and infrastructure."

mm/amp (AFP, Reuters)

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