Wednesday, May 25

Germany Plans to Tweak Tax System for Inflation

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By Steven Arons

(Bloomberg) —

Germany plans to adjust its tax code so that wage increases designed to compensate for higher inflation won’t land employees in a higher tax bracket, Finance Minister Christian Lindner told the Bild am Sonntag newspaper.

“We will adapt the tax system” to account for the high rate of consumer price increases, Lindner said in the interview published Sunday. “Rising wages must not be taxed away from people even though they’re losing purchasing power because of the current inflation .”

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German inflation jumped to the fastest pace on record in March as supply chain bottlenecks are exacerbated by rocketing energy prices in the wake of Russia’s war against Ukraine. The government has taken the first step in an emergency plan to deal with limited energy supplies, as concerns mount that Russia could shut off deliveries of natural gas.

Read More: German Prices Surge More Than Expected, Most Since Early 1990s

To help consumers and businesses weather higher costs, the government late last month announced a support package worth about 17 billion euros ($18.8 billion), including a temporary cut in fuel prices, one-off payments to households and subsidized public transport.

Lindner also said in the interview that he opposed stopping imports of gas and oil from Russia because it would have “dramatic” economic consequences for Germany. He said the government should discuss “all options” to reduce reliance on Russian fossil fuels, including keeping nuclear power plants running for longer and tapping into oil and gas deposits in the North Sea.

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