Cold Comfort

By Global Tax Weekly

Governments certainly benefit from being rather lazy with tax thresholds, which somehow seem to move much slower than earnings growth, so that more and more people fall into higher rate tax bands each year. This phenomenon is usually referred to in tax circles as “bracket creep,” when tax bands fail to keep pace with wage inflation. Germany has its own phrase for it however, which translates as “cold progression.” But while Cameron has at least expressed a desire to thaw the cold progression, the German Government has consistently rejected all calls to give German taxpayers a break by shifting tax thresholds for a number of years now, with the latest rejection coming through a spokesman for Chancellor Merkel. It seems something of a mean-spirited stance given that the Government has eradicated its budget deficit, and the German economy, until recently, was ticking along nicely, producing record tax revenue hauls. However, not all is sweetness and light in Germany right now. The economy is expected to more or less flat-line this year as the economic conflict with Russia hits one of Germany’s key export markets. What’s more, Germany is also deeply in debt, to the tune of about 80 percent of GDP, and it is still effectively propping up the economies of the eurozone. One suspects that Merkel, like Cameron, would like to tackle the problem of bracket creep, but is similarly hamstrung by tight fiscal conditions and political necessity; Merkel’s CDU is in coalition with the center-left SPD, which has promised to veto such a move unless wealth taxes are hiked. At least Cameron acts as if he’s on the side of the taxpayer.

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