Tax Reform of 2015-16 – Measures and Overall Assessment

Most of the measures subsumed under the label of tax reform 2015-16 will become effective in 2016. Once fully in force, it will result in a revenue loss of € 5.2 billion or 1.4 percent of GDP by 2017. At its core is a reform of the income tax schedule which will reduce wage and income tax revenues by € 4.35 billion. Moreover, the negative tax will be extended for employees and newly introduced for old-age pensioners, self-employed persons and farmers. The commuting tax credit and child allowance will be raised and a commuter allowance for low-wage earners increased. Businesses and entrepreneurs will benefit from some minor tax relief measures. The reform will be financed mostly by measures to combat tax fraud, as well as by cancelling exemptions in income tax and VAT, as well as by raising the withholding tax on dividends and on profits from the sale of real estate, and a rise in the land transfer tax. In addition, spending cuts by the federal and state governments and a certain degree of self-financing are expected to make sure that the 2015-16 tax reform should be implemented in a budget-neutral way.