TAX NEWS - June 2010

Germany Tax: No Big Tax Reform In Current Legislative Term

A far-reaching tax reform won't be implemented in Germany during the current legislative term that ends in 2009, Finance Minister Wolfgang Schaeuble told Friday's Hamburger Abendblatt daily.

"We can't come up with a big tax reform that's neutral on revenues, but we need a noticeable leeway for relief," Schaeuble told the newspaper. "I don't see such a leeway for this legislative term."

The German government is required by the constitution to bring its budget deficit close to zero by 2016. As a result, the government in May abolished plans to cut income taxes and instead presented earlier this month a EUR80 billion austerity package for the next four years.

Schaeuble defended the measures, saying there is no "social imbalance" in it. The budget must be consolidated mainly by reducing spending and because more than half of the government's budget is social welfare spending, there is no way around cuts in this area too, Schaeuble said.

Schaeuble also rejected calls to raise the reduced value-added tax rate to the general 19% level, saying that nobody wants to have the full tax rate applied to food products.