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Germany's proposed tax rebate for skilled foreign workers 'socially explosive'

Germany's Federal Minister for Economic Affairs and Climate Protection Robert Habeck, leaves his party's special parliamentary group meeting,in Berlin, ay, July 5, 2024.
Germany's Federal Minister for Economic Affairs and Climate Protection Robert Habeck, leaves his party's special parliamentary group meeting,in Berlin, ay, July 5, 2024. Copyright Kay Nietfeld/(c) Copyright 2024, dpa (www.dpa.de). Alle Rechte vorbehalten
Copyright Kay Nietfeld/(c) Copyright 2024, dpa (www.dpa.de). Alle Rechte vorbehalten
By Tamsin Paternoster
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Germany's Economics Minister Robert Habeck's plan for a gradual tax relief for foreign workers has drawn explosive criticism from across the political spectrum, with arguments that it discriminates against German nationals.

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The German government has unveiled its long awaited preliminary budget plans, after months of political controversy which threatened to bring down German Chancellor Olaf Scholz's ruling coalition.

Inside Germany, one proposal drew more controversy than others, as Habeck's idea for tax relief for foreign skilled workers in order to close Germany's skills gap was criticised by a broad range of parties.

Habeck suggested the tax relief, which would offer skilled foreign workers a tax break of 30% dwindling to 10% after three years, would provide an incentive for skilled foreign workers to come to Germany.

The Economics Minister justified his proposal by saying that it was successfully in place in other countries such as Austria and the Netherlands and that: "If more skilled workers come to Germany because they want to work here or because they take advantage of these benefits, then we all win."

The idea however has been sharply criticised by other parties who say that it favours foreign nationals over German citizens.

German Chancellor Olaf Scholz, center, Minister for Economic Affairs and Climate Protection Robert Habeck, and Minister of Finance Christian Lindner, Friday, July 5, 2024.
German Chancellor Olaf Scholz, center, Minister for Economic Affairs and Climate Protection Robert Habeck, and Minister of Finance Christian Lindner, Friday, July 5, 2024.Kay Nietfeld/(c) Copyright 2024, dpa (www.dpa.de). Alle Rechte vorbehalten

The centre-right Christian Democratic Union's economic policy spokesperson Julia Kockner said that the proposal amounted to "discrimination against the country's residents."

CSU general secretary Martin Huber also criticised the plan, telling tabloid newspaper Bild that the "preferential tax treatment" was "scandalous".

The far-right Alternative for Germany party who have made tackling immigration and German nationalism central campaign messages called the idea "a slap in the face for hard working German workers".

The plan also drew criticism from the other end of the political spectrum, with The Left Party politician Susanne Ferschl saying of the policy that it gave foreign skilled workers preferential treatment over other immigrants to Germany, and that it would potentially contradict the principle of quality enshrined in the Germany constitution.

Germany needs foreign workers to stay competitive

The head of the German Trade Union Confederation Yasmin Fahimi went so far as to call the idea "socially explosive".

Germany has gradually fallen from 12th to 15th place on the list of countries that are attractive to foreigners, according to the Organisation for Economic Co-operation and Development (OECD).

A skills shortage in key industries is said to cost the German economy €29 billion euros, according the German Economic Institute - the loss reportedly increasing ten-fold since 2010.

Habeck maintained that the plan had worked in other countries such as Austria and the Netherlands and could therefore be successfully used by Germany to solve the problem of skills shortages, saying it was "worth a try" to incentivise skilled foreigners to come to Germany.

The budget, agreed last Friday, almost drew Germany's ruling coalition into political meltdown as the three governing parties tried to strike a balance between not going over Germany's constitutional debt limit and committing to increasingly needed spending.

Other controversial aspects of the draft plan include limited spending on defence and European security, which seems poised to set Germany up for further clashes with its international partners who have previously accused the country of not contributing enough for Ukraine.

Germany's government coalition, between the centre left Social Democratic Party, neoliberal Free Democratic Party and the centre left Green Party is growing increasingly unpopular.

In the recent European elections, the ruling parties were overtaken by the centre right CDU, and individually by the far-right AfD party whose members have been beset with a series of scandals.

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