Archives for October 2009

The new German coalition

It is almost a month since the elections in Germany, and finally a coalition settlement has been reached between the CDU/CSU and the FDP.

Let’s take a look at what it will mean…

Tax reforms

Tax reforms worth €24bn have been promised (that’s British billions), although they will not happen until 2011.

My thoughts: no rush then to get those in, plenty of time for that to change

Income tax will be reformed, with a more “banded” type of system.

I’m sure I’ve heard that before.  I’m just not sure after which election…

VAT rates look to stay the same, but there will be some changes are to what qualifies for the reduced 7% rate.

Benefits

Child benefit should be going up in 2010 to 184EUR per month for the first and second children, higher for others.

Well that’s something, it went up 10EUR this year, so another 20EUR will be nice, but bear in mind that despite inflation it has otherwise been stuck at 154EUR since the Euro was introduced in 2002!

Health

No immediate changes are planned to the health system, but instead the coalition will wait for recommendations to be made by a Government committee.

Oh great!  So we’re stuck with the Gesundsheitsfond.  I guess there is no chance of paying less into it and the self-employed will still be at a disadvantage when it comes to sick pay.

Ministers

Wolfgang Schäuble (CDU) moves from the interior ministry (sort of the Home Office) to the finance ministry (ie. the Treasury).

I find this a strange decision, but it could make a lot of people in the IT world happy.

Ursula von der Leyen (CDU) stays at the family ministry.

I’m sure that many in the IT industry would have liked to see her move as well – along with Herr Schäuble she was awarded the “Big Brother Award” this year because of her policies, which have often been criticised by IT specialists and journalists alike.

Karl-Theodor zu Guttenberg (CSU) moves from industry to defence.

I don’t get this one, because during the campaign and even after the election, I thought all the parties were “agreed” that he was the right man for the job his was in.  What happened?

Guido Westerwelle (FDP) will be foreign minister and vice-chancellor

No real surprise here.  The foreign minister is an important role in the German Government, and being vice-chancellor at the same time will probably give him the power to take decisions at high-level meetings without Frau Merkel.  Will she be spending more time in Germany now?

There are also many new ministers that I do not (yet) know much about, or even have an opinion on.

So is it good for Germany?

It’s too early to say.  With so many fresh faces in the cabinet I’m hoping that there will finally be some movement on issues that were just forgotten under the previous Government.  On the other hand, I have a feeling that the new one might just be taking things a little to relaxed, announcing plans now that will not come to fruition for another 15 months.

Or are they just taking things slowly to make sure they get new laws right the first time?

Should the rich pay more tax?

BBC News reported today about an idea circulating in Germany about higher taxes for the rich.  There is talk of a 5% “wealth tax”, which in theory would mean the most wealthy German residents helping to stabilise the economy.

I don’t believe it would work, and it is probably the wrong way to go about solving the economic problems here.

Why it would not work

It is very difficult in Germany to pass laws that only affect part of the community.  So you can tax people for driving a car for example, and you can give tax relief for driving an environmentally friendly car, but you cannot really offer car tax relief for someone on low income.  If they afford the car, then they can afford the tax!

The best example recently was the rule that you could only claim back tax on the cost of getting to work if you had to travel more than 20km each morning.  Anyone living closer lost out.  It took a couple of years and several court cases to get the rule revoked and tax rebates paid out to thousands of people.

In fact, income tax is one of the few taxes that I know of that has different bands rather than just percentages.

So the chances are, that someone somewhere would try to get a “wealth tax” that only affected people with a certain amount of capital overturned, because it was not treating the entire population equally.

Either that or the entire population would have to pay and even those with little savings in the bank would end up contributing towards the financial recovery in a way they would prefer not to.

Why it is the wrong way

The bureaucracy in Germany is extensive to say the least.  Surely there must be room for improvement here and ways of saving money without cutting services.  In fact, I have heard all sorts of ideas about this from the main political parties over the last 10 years, but none seem to come to fruition.

Instead of increasing taxes, it would be better to help companies improve their turnover – resulting in the long run for more income for the state.  In my opinion, increasing the VAT rate a few years ago was not the right decision.

Give the people money in their pockets by not taking it out in the first place, and the chances are that they will spend it or save it to earn interest.  Either way, it will be taxed.

What you may not know…

… is that Germany already has a wealth tax (Vermögenssteuer) – except that it was declared unconstitutional in 1995 and although it still exists in the tax statutes, it is not applied as present.

If the new Government really does want to re-introduce it, then they will have some hard thinking to do first.

Tätervolk

The word Tätervolk is used to refer to the collective guilt of a whole population.

It has been used in the context of the German people’s responsibility for the events of the Second World War, ie. that the nation as a whole was guilty of the crimes committed.  This idea was, however, dismissed at the Nuremberg Trials in 1946.

To hear a simple explanation and a short discussion in German, listen to the podcast:

(Press the “play” button to listen to the podcast)

Download the MP3 file | Subscribe to the podcast

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