Inheritance tax reform is at the heart of the proposed legislative package - Taxes on inheritance are central to a comprehensive package of reforms
The current German government coalition, comprising the Union and SPD, is anxiously awaiting a ruling from the Federal Constitutional Court (Bundesverfassungsgericht) regarding inheritance tax. This decision, expected in 2023, could potentially shake up the political landscape and provide a justification for breaking old promises on the debt brake and taxes.
The inheritance tax, a contentious issue in German politics, generates approximately 13.3 billion euros annually, with around 65 billion euros in assets being inherited or given away. However, it is not a significant source of revenue for the government, as the money generated goes to the federal states.
The issue of inheritance tax is closely related to the political dynamics within the current Berlin government and the country as a whole. Jens Spahn, the parliamentary group leader of CDU/CSU in the Bundestag, admitted on national television that the distribution of wealth in Germany is not in order. He stated that a ruling on the inheritance tax from the Federal Constitutional Court is expected this year.
The SPD has stated that there will be no major cuts on the backs of workers, pensioners, and patients, but cuts are urgently needed due to rising expenses. They are unlikely to make significant moves in larger structural reforms without a clear concession from the Union, including in healthcare system, care, and pension insurance.
The inheritance tax is seen as a symbol of tax injustice in Germany, as inherited wealth is taxed at a lower rate than earned income, according to many experts. This perception has led to calls for reform, with the Federal Constitutional Court tightening the debt brake in the Basic Law two years ago, which led to a controversial provision being dropped.
However, even a reform of the inheritance tax, as demanded by the Federal Constitutional Court, would not significantly change the dire situation of public finances. The current government coalition has decided to spend over 500 billion euros in the current year, highlighting the vast expenses that the government faces.
The Union, with little leverage to enforce reforms in the social systems, finds itself in a difficult position. The coalition agreement does not include provisions for larger reforms, making it a challenge to implement changes without the support of the SPD.
The SPD is seizing on Spahn's remark about the inheritance tax, with Finance Minister Lars Klingbeil stating that there is a big opportunity for discussions. The inheritance tax issue is not the big solution for the federal government, as it's primarily about symbols and carries the risk of burdening the economy.
The inheritance tax is also seen as a symbol of reform blockades in the Berlin government. The "autumn of reforms" announced by Chancellor Friedrich Merz depends on a ruling from the Constitutional Court, as it would provide a justification for breaking old promises on the debt brake and taxes.
In conclusion, the inheritance tax issue is a complex and multi-faceted issue in German politics. The decision of the Federal Constitutional Court this year could have significant implications for the government's fiscal policy and the distribution of wealth in Germany. The author, Timo Pache, discusses this key issue in current German politics, shedding light on the challenges and opportunities that lie ahead.
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