04 04 2018

German Coalition Tax Plan 'Disappointing'

The Ifo economic institute, which advises the German Government, has said that the corporate tax cuts in the United States appear to have provided a short-term boost to the German economy, but criticized the lack of significant tax measures in Germany's coalition agreement.

"Massive income tax cuts in the USA and a strong upturn in the euro area are pushing demand for German goods and services," the institute said in its latest outlook for the German economy.

However, Timo Wollmershaeuser, ifo Head of Economic Forecasting, said that the the program for government agreed by the CDU and the SPD last month was "disappointing" because it avoided any mention of reforms to the income tax and social security systems, while also failing to take account of events in other countries.

"More specifically, it fails to offer any response to the clear reduction in corporate taxes in the USA, as well as in France and Britain," Wollmershaeuser said.

The coalition agreement contains few concrete commitments in the area of domestic tax policy, with the proposal to phase out the solidarity tax for those on low and middle incomes seemingly the highlight. The parties also agreed to provide tax incentives to encourage home ownership.

Wollmershaeuser also said while the economic outlook is positive in the short-term, the international debate about new and increased tariffs on transatlantic trade is weakening sentiment among German companies.

The ifo Institute recently said that Germany would be the worst affect country in the EU as a result of new US tariffs on steel and aluminum imports, with Gabriel Felbermayr, Director of the ifo Center for International Economics, stating the tariffs could be as much as USD1.7bn a year on German output.