FRANKFURT (Reuters) – German Finance Minister Christian Lindner said he would not bow to pressure from members of his government coalition to roll back his plans for billions of euros in personal income tax cuts to mitigate the creeping effects of inflation.
Earlier this month, Lindner unveiled the plans for income tax cuts totalling 23 billion euros ($25 billion) through 2026. Under the plan, the tax-free allowance would rise in three steps and the level of income that triggers the highest tax rate would also be increased, said a finance ministry source.
Speaking in an interview with newspaper Welt am Sonntag, Lindner, a member of the liberal pro-business FDP, said he was facing opposition from his coalition partners, the social democratic SPD and the Greens.
He was quoted saying in the interview published on Saturday that under a liberal finance minister it would not happen that the government fails to adjust the tax-free allowance and upper tax threshold to allow for rising prices.
The cuts are designed to offset “fiscal drag”, whereby wages rise due to inflation and this in turn leads to people paying a higher level of income tax as they get dragged into higher tax bands.
Unlike in several other major economies such as the U.S., Canada and Switzerland, thresholds in Germany’s progressive tax system are not automatically inflation adjusted.
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