Even if the bill is repeatedly criticized, the federal government does not deny that Germany is a high-tax country. “In Germany, the tax and duty burden on earned income is high in an OECD-wide view,” writes the Ministry of Finance in response to a parliamentary question from the Union faction. In a one-person household with an average income, there is therefore the second highest tax burden of all compared industrial countries.
And companies also have to pay comparatively high taxes. The federal government refers to an OECD statistic, according to which Germany is in the top group with a burden of 29.8 percent. Only Japan and Malta have a higher burden. “The corporate tax burden, which is high by international comparison, has an impact on international competitiveness,” writes State Secretary for Finance Katja Hessel (FDP).
From the Federal Government’s point of view, tax cuts could therefore have positive effects. This applies to relief for both citizens and companies. A falling tax burden could “strengthen the investment activity and innovative power of companies,” says the answer. “On the part of the citizens, a falling tax burden increases net wages and creates incentives to take up employment or to postpone retirement.”
However, the federal government does not want to make any concrete announcements about tax relief in its answer. Instead, there are general confessions: “The aim of the federal government is to strengthen the overall competitiveness and productivity of Germany as a business location.” This also includes the tax framework in particular.
“There is a standstill in tax policy”
Finance Minister Christian Lindner (FDP) wants to present tax improvements for companies in the summer. This includes an expansion of tax incentives for research and the introduction of an investment premium. However, business associations are not expecting a large relief package. After all, the budget situation is tight. And the Social Democrats and the Greens are more likely to call for tax increases than relief.
The opposition is therefore critical. “There is a standstill in tax policy,” says the CDU finance politician Fritz Güntzler, who also made the parliamentary question. “We urgently need relief: for companies for an economic upswing, for the citizens so that they can breathe again under the high tax burden.”
If corporate tax cuts are not possible, the Treasury Department hopes to alleviate competitive pressures by introducing a global minimum tax. This would end tax competition, protect the tax base in Germany and strengthen the relative competitiveness of local companies, according to the letter from State Secretary for Finance Hessel. Germany is planning national application from December 31, 2023.
Global minimum tax: high expense, little revenue
However, Lindner does not expect high additional income from the global minimum tax, as a draft law shows. In the medium term, the Ministry of Finance expects revenues of 200 million euros per year. After the introduction, the sum will initially be significantly higher. In 2026, the revenue should be one billion euros. In the years that follow, the sum continues to fall to 800 million (2027) and 600 million (2028).
>> Read more: Global minimum tax hardly pays off for Lindner
At the same time, other tax rules will be adjusted in Germany with the introduction of the minimum tax. This leads to reduced revenue for the Treasury, especially from trade tax. As a result, the bottom line is that the minimum tax for the German state will not bring any additional income, but rather, according to the forecast in the draft law, will result in 115 million euros less per year.
The Ministry of Finance expects significant additional income only in the first few years after the introduction. In 2026, the bottom line is that there will still be an additional 910 million euros, a year later it will be 535 million euros and in 2027 it will still be 285 million euros.
The global minimum tax will mean bureaucratic work for companies. The Ministry of Finance puts the compliance costs for companies at 40.6 million euros annually. In addition, there is a one-off expense of 322.6 million euros for the introduction of new processes for tax returns.
>> Read here: With these four measures, the tax system can be simplified
“In the government’s opinion, the minimum taxation should be part of the location improvement,” complained CDU finance politician Güntzler. “This will entail a gigantic increase in administrative workload. The increase in tax revenue: effectively zero.”
In the summer of 2021, 138 states agreed to introduce a global minimum tax of 15 percent. Companies with a turnover of more than 750 million euros are affected. The minimum tax is intended to ensure that corporations can no longer significantly reduce their payments by shifting profits to tax havens.
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