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Germany's CDU Split On Tax Cuts

May 2011 - Tax & Private Client. Legal Developments by Hassans.

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The ongoing political storm surrounding tax cuts in Germany has intensified, as Bavaria?s Finance Minister and member of the ruling Christian Social Union (CSU) Georg Fahrenschon has joined in calls for the fiscal burden to be reduced on individuals in this legislative period. The remarks have clearly divided Chancellor Angela Merkel?s Christian Democratic Union (CDU) party.

Following hot on the heels of coalition partner the Free Democratic Party (FDP), with their renewed drive for tax cuts, Georg Fahrenschon recently underlined the need for tax cuts in Germany of around EUR8bn by 2013. According to Fahrenschon, given the favourable economic development and predicted record fiscal revenues, it would be incomprehensible to declare a ?fiscal ice age?.

Alluding to fiscal policy as a central lever, Fahrenschon stated that a targeted fiscal policy could be used to mobilize growth and to unleash performance. Fahrenschon also referred to the CDU and sister party the CSU?s pre-election pledge to reduce the fiscal burden by a total volume of EUR15bn. Given that EUR8bn in tax relief was realized last year, it is now ?the duty? of the coalition government to deliver the rest, Fahrenschon stressed.

Fahrenschon maintained that ?the next logical step? is to now alleviate the effects of 'fiscal drift' (die kalte Progression), in a bid to reduce the fiscal burden on low- and middle-income earners. There should not be excessive taxation of income, where salary increases are merely in line with inflation, Fahrenschon warned.

Although Fahrenschon has so far received little support from within the economic wing of the CDU, his comments have met with support from German industry, which has been calling for tax cuts since 2009.

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