German FM eyes new tax cut plans

BERLIN: German Finance Minister Wolfgang Schaeuble is working on new plans to cut income tax, a magazine reported on Saturday, after an earlier proposal by a party colleague met opposition from coalition partners.

News magazine Der Spiegel said Schaeuble, a member of Chancellor Angela Merkel's conservative Christian Democrats (CDU), was looking at raising the earnings level at which the country's 42 percent rate of income tax kicks in.

Marginal tax rates increase steeply in Germany up to a rate of 42 percent for those earning around 53,000 euros ($76,000), then plateau until a top rate of tax of 45 percent kicks in at 250,000 euros ($357,000).

By contrast, Britain levies a top income tax rate of 50 percent on those earning over 150,000 pounds ($245,000), while those earning less than 42,475 pounds ($70,000) pay just 20 percent.

Earlier this week the budget spokesman for CDU lawmakers, Norbert Barthle, suggested creating intermediate tax rates between the 42 percent and 45 percent bands to fund tax cuts for lower earners.

But on Saturday Horst Seehofer, the head of the CDU's Bavarian sister party, the Christian Social Union, said he was against the plan.

"Keep away from any discussion about new measures to finance tax cuts," he was quoted as saying by Der Spiegel.

On Friday German Economy Minister Philipp Roesler, who heads the anti-tax Free Democrats (FDP), also opposed Barthle's plan.

"There cannot be a joint position on higher taxes between Christian and Social Democrats," he was quoted as saying in Friday's Tagesspiegel newspaper.

Social Democrat (SPD) leader Sigmar Gabriel hinted at just this in an interview that will appear in Bild am Sonntag on Sunday. "The SPD is ready for talks at once if the coalition ... agrees to raise taxes on top earners to reduce the burdens on lower incomes," he said in an excerpt provided by the newspaper.

Der Spiegel reported Schaeuble is looking at alternatives to Barthle's plan which would meet CSU and FDP approval and involve raising the income level at which the 42 percent tax rate applies. It was not clear how this would be financed, or if it would benefit lower earners too.

A finance ministry spokeswoman declined to confirm or deny Der Spiegel's report. "There are lots of proposals, and we will make a decision in the autumn," she said.

Germany's economy is growing strongly, and tax revenues have been higher than expected. However, a recent poll showed most Germans would prefer the government to focus on reducing its budget deficit of 3.3 percent of GDP the smallest of any major European country  rather than cut taxes .

Copyright Reuters, 2011