ZCZC
BCN-19
GERMAN-TAX -FINANCE-PENSION
German gov’t eyes tax raise to finance pension pledge: report
BERLIN, Aug. 25, 2018 (BSS/Xinhua) – German Finance Minister Olaf Scholz
is eyeing an increase in taxes in order to finance a costly coalition pledge
to shore up Germany’s public pensions system, Spiegel magazine reported on
Friday.
According to Spiegel, the finance ministry reached the conclusion that
guaranteeing all German retirees a pension level equivalent to 48 percent of
their current income would require the government to raise taxes by billions
of euros. Concrete options mulled included lifting value added taxes (VAT) in
Germany and re-instating a recently abolished and controversial “solidarity
surcharge” worth roughly 20 billion euros (23.2 billion U.S. dollars) per
year.
Scholz has so far vehemently opposed calls by some demographic experts to
raise the German retirement age, rather than spending more public money on
the country’s rapidly growing cohort of pensioners. Instead, Scholz recently
went beyond his already ambitious target for the period until 2025 by
demanding an extension of the timeframe in which his desired 48-percent ratio
applied until 2040.
The finance minister has said an overhaul of the German pensions system is
critical to alleviate citizens’ concerns about socio-economic inequality.
German Chancellor Angela Merkel (CDU) noted that the issue was a priority,
but said the government would not intervene with the work of the independent
expert commission appointed to explore concrete proposals for a pensions
system overhaul. The 2020s in particular are widely held to become a critical
period for the German social insurance system when a large number of citizens
from the so-called post-war baby boomer generation are expected to retire.
Nevertheless, prominent academic experts have sharply criticized Scholz’
outlined proposals. Bernd Raffelhueschen, professor of economics at the
University of Freiburg, warned that a pension level equivalent to 48 percent
of their current income would be “unaffordable and unfair for younger
generations.”
“Young employees would face an even higher fiscal burden and the
acceptance of the pensions system would decline,” Raffelhueschen said.
Axel Boersch-Supan of the Max-Planck-Institute for Social Policy estimated
that the cost of establishing such a fixed and universal threshold would rise
from 40 billion euros per year in 2023 to 100 billion euros in 2040 as the
German population continues to age. The budgetary gap which would have to be
filled as a consequence would be equivalent to a jump in VAT from 19 to 26
percent. (1 euro=1.16 U.S. dollar)
BSS/XINHUA/HR/1106