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Global Economy

"Relief plans at the wrong time"

According to Veronika Grimm, finance minister Christian Lindner's plans to relieve taxpayers are not timely. "A reform in which the higher earners nominally gain more comes at the wrong time," Grimm told the Rheinische Post. In principle it is correct to compensate for the so-called cold progression and to relieve the middle of society in view of the high inflation.

"On the other hand, we currently need relief, primarily for lower and middle incomes, who cannot bear the hardship caused by the price increases on their own," said the member of the Advisory Council on the assessment of overall economic development.

You have to try to relieve lower and middle income groups in a targeted manner, right down to the middle of society. "Relief with the watering can, such as the tank discount or a reduction in VAT, are not appropriate," advised the Erlangen economist.

Greens and SPD: plans are "socially unbalanced"

According to Lindner, he wants to relieve 48 million citizens of taxes. Overall, they should save more than ten billion euros in the coming year, as the FDP politician announced yesterday. In addition to an adjustment of the income tax rate, child benefit and the child allowance are also to be increased.

The two coalition partners, the Greens and the SPD, consider Lindner's plans to be socially unbalanced. The minister, however, argued that the proposed tax cuts were capped. "The additional relief ends at an annual income of 62,000 euros – or from there there is no longer any additional benefit." That is about 1.5 times the median income in Germany. According to Lindner's plans, the maximum tax relief for an individual is 479 euros in the coming year.

Critical voices multiply

The head of the German Institute for Economic Research (DIW), Marcel Fratzscher, described the plans in the daily topics as "very unbalanced". "70 percent of that goes to the 30 percent with the highest incomes," he said. "People on low incomes who pay little or no income tax get practically nothing from it." These people are particularly affected by inflation.

The German Association of Cities warned of tax losses in the billions and called for compensation for municipalities. Managing Director Helmut Dedy told the dpa news agency that Lindner's plans against cold progression would also result in tax shortfalls for the municipalities of around 4.2 billion euros in 2023 and 2024. "The federal and state governments must therefore ensure that the cities are provided with the necessary funds despite tax relief."

Lindner defends his tax plans

Lindner defended his tax plans against criticism. "The strong shoulders will continue to bear a great burden. But they will not be burdened any more. And above all, we will ensure that people who don't really have broad shoulders suddenly pay more taxes due to inflation." It was a "pure inflation adjustment," said the head of the FDP on ZDF's "heute journal".

He referred to other traffic light coalition measures targeting low-income people. That's what he called the relief packages that have already been decided, with a one-off payment for Hartz IV recipients and a heating subsidy for housing benefit recipients. He also recalled coalition plans for a reform of housing benefit and the conversion of Hartz IV into a new "citizen's allowance".

"Basic Benevolence"

SPD leader Lars Klingbeil signaled approval. "The fact that we have to spend a lot of money to get people through the crisis sends the right signal," he said in the morning show shared by ARD and ZDF – although he had different ideas than the finance minister about how small and medium-sized incomes would be relieved could become. "Now it's a matter of clarifying in detail how we can do this concretely and quickly."

Linder also gets support from Chancellor Olaf Scholz. The chancellor sees the proposals with "fundamental goodwill," said government spokesman Steffen Hebestreit. He made it clear that the plans should be seen as part of a larger overall concept that should be developed over the next few weeks in view of the immense cost increases, for example for energy. According to Hebestreit, the departmental coordination is now beginning. The concept will be developed in such a way that it will find the necessary support from the cabinet.

Hebestreit referred to statements by Scholz that citizens should not be left alone with the rising prices. In his previous position as finance minister, Scholz corrected the cold progression twice. This correction is now pending a third time.

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