Berlin moves to greatly reduce ‘solidarity tax’ for eastern Germany

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By Anne Fleischmann  & Luke Hurst
Finance minister Olaf Scholz wants to get rid of the Soli tax
Finance minister Olaf Scholz wants to get rid of the Soli tax

Germany’s solidarity surcharge, which raises money from taxpayers to boost the economy in the east, is to be abolished for 90% of Germans.

Finance minister Olaf Scholz sent the proposal to government departments for approval last week, and if accepted, it will become law in 2021.

The extra tax, known as the "Soli tax" amounts to 5.5% of income tax and corporation tax.

The law would take 90% of taxpayers completely out of the "Soli tax" and would reduce the tax bill for another 6-7% of the population.

The bill, proposed by the finance minister from Angela Merkel’s CDU party, has been encouraged with support from the CDU’s coalition partner the SPD.

The Prime Minister of Lower Saxony, Stephan Weil, said: "It is absolutely time to noticeably reduce the burden on small and medium incomes by abolishing the solidarity surcharge."

Weil also thinks it's good that 10% of Germans should continue to pay the solidarity surcharge. 

"Nobody would understand, however, if the highest incomes in Germany were now to be rewarded with tax gifts totalling around eleven billion euros. We'd better invest this money in education and climate protection."

Thorsten Schäfer-Gümbel, parliamentary party and state leader of the SPD in Hesse, also supports Scholz.

What is the Soli tax?

The solidarity surcharge was introduced in 1991, to help reconstruction of the east following the reunification of Germany in the wake of the fall of the Berlin Wall.

The tax was originally supposed to be in place only for a limited time but became permanent in 1995.

Initially, the solidarity rate was 7.5%, but since 1995 it has been 5.5%. In addition, the surcharge has been unlimited since 1995.

Contrary to some assumptions, taxpayers in the west and east have to pay the tax.

According to the Ministry of Finance, in 2018 the German state received €18.9 billion as a result.

Criticism of the bill

According to the Ministry of Finance, single people with an annual gross income of up to €73,874 would not have to pay anything. From €109,451 gross annual wages, the full supplement would have to be paid.

Accordingly, a family with two children and an annual income of €221,375 or more would have to pay the full solidarity surcharge. Families earning less than €151,990 gross would be exempt from the solidarity surcharge.

If the draft is adopted, German citizens would then have to pay around €10 billion less in tax.

Criticism comes from parties outside the coalition. Katja Kipping of Die Linke said that the CDU/CSU and SPD were making politics for the rich with their proposal.

FDP General Secretary Linda Teuteberg wrote on Twitter: "The Soli is unconstitutional for everyone from 2020. So it must also be abolished for everyone. Our constitution also applies to those who in reality want tax increases, and there you have to choose the normal procedures and not the back door."

Many citizens on social networks are also outraged by the fact that they still have to pay the solidarity surcharge. "The solidarity surcharge was introduced in 1991 for a limited period of one year. I believed that," wrote a user on Twitter.