Unfortunately, this blog has to get political again, as many of the plans of the possible next governing coalition between the CDU/CSU and SPD are likely to be particularly offensive to private investors and the younger generation. They will have to pay for a large part of the politicians’ orgy of figures and will have to sacrifice their prosperity and their lifetimes – and all so that supposedly benevolent politicians can squander “lumpy billions” without a plan.
Even before the constitutional session of the newly elected Bundestag, the CDU/CSU decided to relax the debt brake for spending on defense, civil defense, intelligence services and cyber security, which is enshrined in the Basic Law, with the SPD and Green Party MPs who had actually been voted out of office, out of concern that they would not achieve the necessary majorities in the new parliament. In future, additional loans may be taken out for these items whose costs exceed one percent of gross domestic product. An additional special fund was also created, which may initially be fed with loans amounting to 500 billion euros in order to invest in the country’s ailing infrastructure. The Greens even agreed to a further 100 billion euro package for climate protection. An expensive way of maintaining the firewall.
So far, none of the parties involved have said which projects the money will actually be used for. The main thing is that the money is available…
In total, the German state is in debt to the tune of around 2.6 trillion euros, which corresponds to more than 30,000 euros per German citizen and a debt ratio in relation to gross domestic product of 63%. This is already above the maximum that the EU considers sustainable. This does not even include the planned 900 billion euro shadow budget.
To cover interest costs alone, Germany would have to spend almost 39.6 billion euros in 2024, a whopping 8.3% of the entire federal budget. With rising interest rates and higher new borrowing, this figure could rise to 50 billion euros and thus increase by a good quarter – within just one year, mind you.
Taxpayers will have to bear these costs. Above all, the burden on future generations will be greater, as the new special funds are set up for twelve years and do not necessarily have to be repaid, but can be refinanced and stretched via further bonds. The bond market has already reacted and adjusted interest rates significantly upwards, and property owners are already paying considerably more for new or subsequent financing. This quickly amounts to a burden of several hundred euros a month. Furthermore, additional borrowing increases potential inflation and causes the cost of living to rise, as credit-financed demand meets an economy operating at full capacity.
Additional government debt increases the risk of tax increases and spending cuts. The SPD is currently proving that this will not take that long. After the debt orgy, it is calling for a tax orgy and is campaigning for the retention of the solidarity surcharge, the introduction of a wealth tax, a financial transaction tax and a higher flat-rate withholding tax. High earners should also pay more to the tax authorities in future. But how honest are they being here?
The solidarity surcharge hits the middle class for no intended purpose
The solidarity surcharge was originally introduced in 1991 and was initially intended to cover the costs of the second Gulf War and later to finance German reunification. Its amount has been adjusted time and again and is generally regulated via income tax. Since 2021, under pressure from the FDP, the surcharge has no longer been levied, at least for salaried employees – provided that the taxable annual income does not exceed €68,413 for single people or €136,826 for married couples.
At first glance, this may only affect higher earners, but anyone who receives investment income must also pay the supplementary tax, regardless of whether the saver receives high or low income, for example from a small pension. Although allowances apply, these are not particularly high at 1,000 euros. This means that the solidarity surcharge still also affects small savers who make their own provisions for their old age and pension. Incidentally, up to 5.5% is due. However, even companies continue to pay the solidarity surcharge via corporation tax and this mainly affects SMEs.
Politicians had always promised not to levy the surcharge permanently and repeatedly referred to the Solidarity Pact, which was intended to provide additional funding to the eastern German federal states. This expired at the end of 2019, which means that since 2020, the reason has not necessarily ceased to exist, but the purpose has. In 2023, the federal government received around 13 billion euros via the solidarity surcharge. This is no longer offset by direct expenditure.
According to estimates by the German Taxpayers’ Association, the German state collected almost 385 billion euros via the solidarity surcharge since its introduction until 2024, but only spent 157 billion euros on the solidarity pact. The total expenditure for the “Aufbau Ost” program amounts to 262 billion euros. This still results in a delta of 123 billion euros, which has established itself as an additional source of income that is not (or no longer) earmarked.
This is good business for the state. The solidarity surcharge certainly made a significant contribution to reunification, but did not exclusively benefit the East.
Higher flat-rate withholding tax hits small savers hard
The SPD wants to get its hands on the assets of share savers and is therefore planning to increase the final withholding tax from the current 25% to 30%. The argument is that capital gains are taxed unfairly low compared to the taxation of earned income. We already showed in January that this is a misconception. A company can only distribute what it has earned after deducting all costs and expenses and is already taxed on its profits at company level in the form of corporation tax, trade tax and the solidarity contribution. The distribution is then taxed again on the shareholder side by means of the flat-rate withholding tax, resulting in a tax rate of over 50% for profit distributions and dividends. This is significantly higher than the top income tax rate.
If the distribution is increased by five percentage points – as planned by the SPD – only EUR 459.95 net will remain from the original profit distribution of EUR 1,000 at investor level. 33.52 euros less than before. The total burden increases to 54%. The following also applies here: the increase in the flat-rate withholding tax also affects small savers who want to make provisions for their old age and thus actually want to protect themselves against poverty in old age because the state does not provide adequate provision for this. An allowance of just 1,000 euros is once again too low. Assuming an average dividend yield of a not unrealistic 4%, this amount is already exhausted with a portfolio size of just 25,000 euros. This is still a long way from being rich.
An increase could deter investors from making their own provisions at all. They could end up paying the state again in their old age. Germany is already a high-tax country with many insane taxes. Supposedly well-intentioned ideas such as increasing the minimum wage or the citizen’s income contribute to this.
Financial transaction tax cannot be sensibly implemented
A financial transaction tax would also affect those who are active on the markets as small savers. Every time they buy and sell or execute a savings plan, a new amount would go to the tax authorities. This would harm Germany itself and reduce its economic competitiveness. A financial transaction tax could prompt financial institutions to relocate their activities to countries without such a tax or only recommend products to their customers that are active abroad.
Above all, international coordination remains difficult. Without a global introduction, a financial transaction tax can easily be circumvented via individual countries and regions, for example by trading via foreign stock exchanges. Global coordination is politically and practically almost impossible to implement.
A wealth tax is extremely damaging
The proposal for a wealth tax is ill-conceived and only looks good on the surface. However, its impact is also enormous, as we pointed out in detail in September 2021. The result: a tax of just 1% increases the tax burden considerably and makes it difficult to recoup this loss, especially in a low-interest environment. It is irrelevant whether we are talking about really high assets or very small sums.
In general, the lower the return, the higher the burden, which can quickly reach 64% when combined. Even exemption limits only help to a limited extent and the overall economic impact can be devastating. You can read more about this in our separate article.
New top tax rate and wealth tax
The top tax rate is currently 42% and has applied to single people with an annual taxable income of 68,481 euros or more since this year. For married couples who are assessed jointly, double this amount applies, i.e. 136,962 euros. The top tax rate is progressive and therefore ultimately only a marginal tax rate. Taxpayers only pay the 42% for every euro above this limit. For every euro below, they pay less. Everyone has their own personal average tax rate. Therefore, the amounts mentioned cannot be taken as a guide to the gross salary. As an employed single person with no other income, you only slide into the top tax rate from a gross salary of around 85,000 euros, which would correspond to a monthly salary and a net income of 7,080 or just over 4,100 euros.
There is also the maximum tax rate, which is commonly referred to as the wealth tax. From 2025, this will apply from a taxable income of 277,826 euros and adds three percentage points on top. In view of the solidarity surcharge, which, as described above, is no longer earmarked for a specific purpose, there is effectively a wealth tax twice.
According to the SPD’s plans, the top tax rate is to rise from 42% to 47%. However, this would only apply from a taxable income of 83,000 euros, which would be significantly higher than the current rate. This is presumably one of the compromises that Friedrich Merz was able to exchange. The wealth tax is to be raised from the current 45% to 49%, although the taxable income required for single persons is to be increased only slightly to 278,000 euros.
It is questionable whether such an adjustment will actually have the desired effect. Really wealthy people have access to special tax models and can prepare themselves with appropriate structures, for example by moving their place of residence abroad. This could lead to a flight of capital and the effect of the tax increase would be diminished.
SPD and CDU/CSU drive voters to extremes
Whichever way you look at it: In the end, it will always be the taxpayer, and therefore the ordinary citizen, who pays for the politicians’ orgy of debt. Even tax increases for the supposedly better-off are of little help here, as they always affect the ordinary tradesman, the small bakery business and the share saver who, due to the inflation caused by the state, actually only wants to compensate for their loss of purchasing power.
For the SPD, the plans ultimately mean only one thing: they are currently in a kind of sweet spot and can push through a large number of their demands. After all, the CDU/CSU is dependent on a partner in order to obtain the necessary majority to form a government. However, at 16.4%, the SPD is no longer a popular party. More than 83% did not vote for them and still get pure SPD policies. Friedrich Merz had to move significantly to the left to achieve this. Anyone who thought that the “Ampel” would have been too left-wing with two left-wing partners has now been proven wrong: the CDU/CSU can already do this with just one partner. The voice of liberal reason is missing.
This could encourage even more voters to vote more extreme in future, perhaps even helping the AFD to an absolute majority. The SPD, together with Friedrich Merz, who has so far reneged on all his election promises, is making a very significant contribution to this.
I’m afraid of that. Until then, you can only take it with humor:
- Elias, Roland (Author)
Letzte Aktualisierung am 2025-04-16 at 07:06 / Affiliate Links / Bilder von der Amazon Product Advertising API
